Question

The stockholders' equity accounts of Splish Company have the following balances on December 31, 2025.

Common stock, $10 par, 289,000 shares issued and outstanding
Paid-in capital in excess of par- common stock
Retained earnings
$2,890,000
1,300,000
5,860,000
Shares of Splish Company stock are currently selling on the Midwest Stock Exchange at $35.
Prepare the appropriate journal entries for each of the following cases. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
a. A stock dividend of 8% is (1) declared and (2) issued.
b. A stock dividend of 100% is (1) declared and (2) issued.
c. A 2-for-1 stock split is (1) declared and (2) issued.

Answer 1

To prepare journal entries for stock dividend and stock split transactions, we need to consider their impact on stockholders' equity accounts. For a stock dividend of 8%, no entry is needed at the time of declaration, but when it is issued, an entry is made to transfer a portion of retained earnings to common stock and paid-in capital in excess of par. For a stock dividend of 100%, no entry is necessary at the time of declaration, and when it is issued, retained earnings are transferred to common stock. For a 2-for-1 stock split, no entry is made at the time of declaration or issuance.

Step-by-step explanation:

To prepare journal entries for the given cases, we need to consider the impact of each transaction on the stockholders' equity accounts. Here are the appropriate journal entries:

a. A stock dividend of 8% is declared:

• No Entry

A stock dividend is a distribution of additional shares to existing shareholders. No entry is required at the time of declaration.

A stock dividend of 8% is issued:

• Retained earnings - 2,320,000 (289,000 shares * $2.89 per share)
• Common stock - 289,000 shares * $10 per share
• Paid-in capital in excess of par - common stock - $2,320,000 (289,000 shares * [$35 - $10] per share)

A stock dividend transfers a portion of retained earnings to common stock and paid-in capital in excess of par.

b. A stock dividend of 100% is declared:

• No Entry

A stock dividend is a distribution of additional shares to existing shareholders. No entry is required at the time of declaration.

A stock dividend of 100% is issued:

• Retained earnings - $2,890,000 (289,000 shares * $10 par value per share)
• Common stock - 289,000 shares * $10 per share

A stock dividend transfers retained earnings to common stock.

c. A 2-for-1 stock split is declared:

• No Entry

A stock split increases the number of shares outstanding without impacting the total stockholders' equity. No entry is required at the time of declaration.

A 2-for-1 stock split is issued:

• No Entry

A stock split increases the number of shares outstanding without impacting the total stockholders' equity. No journal entry is required.