Question

The common stock of Swifty Inc. is currently selling at $120 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $75 per share. 10.50 million shares are issued and outstanding.

Required:
Prepare the necessary journal entries assuming the following.
a. The board declares and issues a 2-for-1 stock split.
b. The board declares and issues a 100% stock dividend.
c. Briefly discuss the accounting and securities market differences between these two methods of increasing the number of shares outstanding.

Answer 1

A. No Entry

No Entry

B. Dr Retained Earnings $105,000,000

Cr Common Stock Dividend Distributable $105,000,000

Dr Common Stock $105,000,000

Cr Common Stock $105,000,000

Step-by-step explanation:

A. Preparation of the necessary journal entries assuming the The board declares and issues a 2-for-1 stock split.

No Entry

No Entry

B. Preparation of the necessary journal entries assuming theThe board declares and issues a 100% stock dividend.

Dr Retained Earnings $105,000,000

Cr Common Stock Dividend Distributable $105,000,000

($10 x 10.50 million)

(To record the declaration)

Dr Common Stock $105,000,000

Cr Common Stock $105,000,000

(To record the distribution)