Question

Problem 11-7A (Part Level Submission) On January 1, 2019, Larkspur, Inc. had the following stockholders' equity accounts.

Common Stock ($10 par value, 78,300 shares issued and outstanding) $783,000

Paid-in Capital in Excess of Par Value-Common Stock 199,000

Retained Earnings 593,000

During the year, the following transactions occurred.

Jan. 15 Declared a $1.10 cash dividend per share to stockholders of record on January 31, payable

February 15. Feb. 15 Paid the dividend declared in January.

Apr. 15 Declared a 5% stock dividend to stockholders of record on April 30, distributable

May 15. On April 15, the market price of the stock was $16 per share. May 15 Issued the shares for the stock dividend.

July 1 Announced a 2-for-1 stock split. The market price per share prior to the announcement was $14. (The new par value is $5.)

Dec. 1 Declared a $0.50 per share cash dividend to stockholders of record on December 15, payable January 10, 2020.

Dec. 31 Determined that net income for the year was $225,000.

a)Journalize the transactions and the closing entries for net income and dividends.

FYI

Solution
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Problem 11-7A (Part Level Submission)
Jan. 15 Cash Dividends (78,300 × $1.10) $86,130
Apr. 15 Stock Dividends (3,915 × $16) $62,640
Common Stock Dividends Distributable (3,915 × $10) $39,150
Paid-in Capital in Excess of Par-Common Stock (3,915 × $6) $23,490
July 1 Memo - two-for-one stock split increases number of shares to 164,430
= (82,215 × 2) and reduces par value to $5 per share.
Dec. 1 Cash Dividends (164,430 × $0.50) $82,215
Dec. 31 Retained Earnings ($39,150 + $82,215) $168,345

Answer 1

January 15, cash dividend declared

Dr Retained earnings 86,130

Cr Cash dividends payable 86,130

February 15, paid the cash dividend

Dr Cash dividends payable 86,130

Cr Cash 86,130

April 15, declared a 5% stock dividend is declared

Dr Retained earnings 62,640

Cr Common stock dividend distributable 39,150

Cr Paid in capital in excess of par value 23,490

May 15, distributed stock dividends

Dr Common stock dividend distributable 39,150

Cr Common stock 39,150

July 1 stock split, no journal entry is necessary, only a disclosure. The common stocks doubled from 82,215 to 164,430 with $5 par value.

December 1, cash dividend declared

Dr Retained earnings 82,215

Cr Cash dividends payable 82,215

December 31, net income is closed

Dr Net income 225,000

Cr Income summary 225,000

then:

Dr income summary 225,000

Cr Retained earnings 225,000

Since the dividends were already closed to retained earnings previously, no adjustment record is necessary.