Question

Problem 10-05 Jackson Enterprises has the following capital (equity) accounts: Common stock ($2 par; 150,000 shares outstanding) $ 300,000

Additional paid-in capital 250,000
Retained earnings 275,000 The board of directors has declared a 25 percent stock dividend on January 1 and a $0.30 cash dividend on March 1. What changes occur in the capital accounts after each transaction if the price of the stock is $5? Round the number of shares outstanding to the nearest whole number and the other answers to the nearest dollar. The impact of the 25 percent stock dividend: Common stock ($ ____par; shares outstanding) $_____ Additional paid-in capital ______
Retained earnings ______
The impact of the $0.30 a share cash dividend: Common stock ($ _____ par; shares outstanding) $ ______
Additional paid-in capital _____
Retained earnings _____

Answer 1

On January 1, the BOD declared a 20% stock dividend. Therefore, new stock to be issued as dividends

=

100

,

000

s

h

a

r

e

s

×

0.20

= 20,000 shares

Total number of shares

= 100,000 + 20,000

= 120,000 shares

Therefore,

Common stock

=

$

1

×

120

,

000

= $120,000

Additional paid-in-capital

=

E

x

i

s

t

i

n

g

c

a

p

i

t

a

l

+

n

e

w

s

h

a

r

e

s

×

(

M

a

r

k

e

t

v

a

l

u

e

−

p

a

r

v

a

l

u

e

)

=

$

200

,

000

+

20

,

000

s

h

a

r

e

s

×

(

$

4

−

$

1

)

= $260,000

Retained earnings

=

E

x

i

s

t

i

n

g

a

m

o

u

n

t

−

(

C

a

s

h

d

i

v

i

d

e

n

d

×

t

o

t

a

l

s

h

a

r

e

s

)

=

$

225

,

000

−

(

$

0.25

×

120

,

000

)

= $225,000 - $30,000

= $195,000

Therefore,

Common stock increases by 20,000 shares after the 20% stock dividend declaration.

Additional paid-in capital increases by $60,000 after the 20% stock dividend declaration.

Retained earnings decreased by $30,000 after the $0.25 cash dividend declaration.