Question

Entries for Stock Dividends

Healthy Life Co. is an HMO for businesses in the Fresno area. The following account balances appear on Healthy Life’s balance sheet: Common stock (3,000,000 shares authorized; 2,200,000 shares issued), $15 par, $33,000,000; Paid-in capital in excess of par—common stock, $9,000,000; and Retained earnings, $89,550,000. The board of directors declared a 5% stock dividend when the market price of the stock was $18 a share. Healthy Life reported no income or loss for the current year.
For a compound transaction, if an amount box does not require an entry, leave it blank. If no entry is required, select "No entry required" from the dropdown.
a1. Journalize the entry to record the declaration of the dividend, capitalizing an amount equal to market value.
Stock Dividends
Stock Dividends Distributable
Paid-In Capital in Excess of Par-Common Stock
Feedback
Recall that a stock dividend affects only stockholders' equity.
Learning Objective 3.
a2. Journalize the entry to record the issuance of the stock certificates.
Stock Dividends Distributable
Common Stock
Feedback
What is the company giving to the stockholders?
Learning Objective 3.
b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.
Total paid-in capital $
Total retained earnings $
Total stockholders' equity $
c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.
Total paid-in capital $
Total retained earnings $
Total stockholders' equity $

Answer 1

Answer and Explanation:

a.1 The Journal entry is shown below:-

Stock dividend Dr, $1,980,000 (2,200,000 × $18 × 5%)

To Stock dividend distributable $1,650,000 (2,200,000 × $15 × 5%)

To paid in capital in excess of par-common stock

$330,000 (2,200,000 × ($18 - $15) × 5%)

(Being stock dividend is recorded)

2. Stock dividend distributable Dr, $1,650,000

To common stock $1,650,000

(Being stock dividend is recorded)

b. The computation of amounts before the stock total paid in capital, total retained earnings, and total stockholders' equity is shown below:-

Total paid in capital is

= $33,000,000 + $9,000,000

= $42,000,000

Total retained earning = $89,550,000

Total stockholder equity is

= $42,000,000 + $89,550,000

= $1,31,550,000

c. The computation of amount after the stock dividend total paid-in capital, total retained earnings, and total stockholders' equity is shown below:-

Total paid in capital is

= $42,000,000 + $1,980,000

= $43,980,000

Total retained earning is

= $89,550,000 - $1,980,000

= $87,570,000

Total stockholder equity is

= $43,980,000 + $87,570,000

= $131,550,000