Dividends
E15-12 (Cash Dividend and Liquidating Dividend)
Lotoya Davis Corporation has 10 million shares of common stock outstanding. On June 1, the
board of directors voted on an 80 cents per share cash dividend to stockholders of record as of
June 14, payable June 30.
Instructions
(a) Prepare the journal entry for each of the dates above assuming the dividend represents a
distribution of earnings.
(b) How would the entry differ if the dividend were a liquidating dividend?
Solution
(a) Retained Earnings..........................................................................................
8,000,000
Dividends Payable............................................................................. 8,000,000
June 14
No entry on date of record.
June 30
Dividends Payable.........................................................................................
8,000,000
Cash....................................................................................................
8,000,000
(b) If this were a liquidating dividend, the debit entry on the date of declaration would be to
Additional Paid-in Capital rather than Retained Earnings.
E15-14 (Stock Split and Stock Dividend)
The stockholders’ equity accounts of G.K. Chesterton Company have the following balances on
December 31, 2017.
Common stock, $10 par, 300,000 shares issued and outstanding $3,000,000
Paid-in capital in excess of par-common stock $1,200,000
Retained earnings $5,600,000
Shares of the company stock are currently selling at $37.
Instructions
Prepare the appropriate journal entries for each of the following cases.
(a) A stock dividend of 5% is declared and issued.
(b) A stock dividend of 100% is declared and issued.
(c) A 2-for-1 stock split is declared and issued.
Solution
(a) Retained Earnings (15,000 X $37).................................................................
555,000
Common Stock Dividend Distributable................................................... 150,000
Paid-in Capital in Excess of Par—
Common Stock...................................................................................... 405,000
Common Stock Dividend Distributable......................................................... 150,000
Common Stock......................................................................................... 150,000
(b) Retained Earnings (300,000 X $10)...............................................................
3,000,000
Common Stock Dividend Distributable................................................... 3,000,000
Common Stock Dividend Distributable.........................................................
3,000,000
Common Stock......................................................................................... 3,000,000
(c) No entry, the par value becomes $5 and the number of shares outstanding increases to
600,000.
P15-8 (Dividends and Splits)
Myers Company provides you with the following condensed balance sheet information.
Assets Liabilities and Equity
Current assets $40,000 Total liabilities $100,000
Investments 60,000 Equity
Equipment 250,000 Common stock ($5 par) $20,000
Intangibles 60,000 Paid-in capital 110,000
Retained earnings 180,000
Total equity $310,000
Total Assets $410,000 Total Liabilities & Equity $410,000
Instructions
For each of the following transactions, indicate the dollar impact (if any) on the following five
items: (1) total assets, (2) common stock, (3) paid-in capital, (4) retained earnings, and (5) total
equity. (Each situation is independent.)
(a) Myers declares and pays a $0.50 per share cash dividend.
(b) Myers declares and issues a 10% stock dividend when the market price of the stock is
$14 per share.
(c) Myers declares and issues a 30% stock dividend when the market price of the stock is
$15 per share.
(d) Myers declares and issues a 2-for-1 stock split.
Solution
(a) Assuming Myers Co. declares and pays a $.50 per share cash dividend.
(1) Total assets—decrease $2,000 [($20,000 ÷ $5) X $.50]
(2) Common stock—no effect
(3) Paid-in capital in excess of par—no effect
(4) Retained earnings—decrease $2,000
(5) Total stockholders’ equity—decrease $2,000
(5) Total stockholders’ equity—decrease $2,000
(b) Myers declares and issues a 10% stock dividend when the market price of the stock is $14.
(1) Total assets—no effect
(2) Common stock—increase $2,000 (4,000 X 10%) X $5
(3) Paid-in capital in excess of par—increase $3,600 (400 X $14) – $2,000
(4) Retained earnings—decrease $5,600 ($14 X 400)
(5) Total stockholders’ equity—no effect
(c) Myers declares and issues a 30% stock dividend when the market price of the stock is $15
per share.
(1) Total assets—no effect
(2) Common stock—increase $6,000 (4,000 X 30%) X $5
(3) Paid-in capital in excess of par—no effect
(4) Retained earnings—decrease $6,000
(5) Total stockholders’ equity—no effect
(e) Myers declares a 2-for-1 stock split
(1) Total assets—no effect
(2) Common stock—no effect
(3) Paid-in capital in excess of par—no effect
(4) Retained earnings—no effect
(5) Total stockholders’ equity—no effect
