HiTech Manufacturing Company has 1,000,000 shares of $1 par value capital stock

Question

HiTech Manufacturing Company has 1,000,000 shares of $1 par value capital stock outstanding on January 1. The following equity transactions occurred during the current year:


Apr. 30 -Distributed additional shares of capital stock in a 2-for-1 stock split. Market price of stock was $35 per share.

June 1 -Declared a cash dividend of $0.60 per share.

July 1 -Paid the $0.60 cash dividend per share to stockholders.

Aug. 1 -Declared a 5 percent stock dividend. Market price of stock was $19 per share.

Sept. 10 - Issued shares resulting from the 5 percent stock dividend declared on August 1.

Dividends-
Dividends Payable-

Dividends Payable-
Cash-

Retained Earnings-

Stock Dividend to be distributed-
Common Stock-

Explanation / Answer

Answer: In April 30 Distributed additional shares of capital stock in a 2-for-1 stock split. Market price of stock was $35 per share. No journal entry necessary. You may make a notation that there are now 2,000,000 shares of stock outstanding and the par value is now $0.50. June 1 Declared a cash dividend of 60 cents per share. 2,000,000 x 0.60 = 1,200,000 Dr Dividends (or Retained Earnings) 1,200,000 Cr Cash Dividends Payable 1,200,000 July 1 Paid the 60-cent cash dividend to stockholders. Dr Cash Dividends Payable 1,200,000 Cr Cash 1,200,000 Aug. 1 Declared a 5 percent stock dividend. Market price of stock was $19 per share. 2,000,000 x 5% = 100,000 shares Dr Stock Dividends (Or Retained Earnings) 1,900,000 (100,000 x $19) Cr Stock Dividends Distributable 50,000 (100,000 x $0.50 par value) Cr Paid-in Capital in Excess of Par--Common Stock 1,850,000 Sept 1. Issued shares resulting from the 5 percent stock dividend declared on Aug 1. Dr Stock Dividends Distributable 50,000 Cr Common Stock 50,000 a) Prepare journal entries to record the above transaction b) compute the number of shares of capital stock outstanding year-end. 1,000,000 + 1,000,000 + 100,000 = 2,100,000 c) What is the par value per share Hitech Manufacturing stock at the end year? $0.50 per share d) Determine the effect of each of the following on total stockholders' equity: stock split, No effect declaration and payment of a cash dividend, Retained Earnings is decreased by the amount of the dividend. So total Stockholders' Equity is decreased by the same amount. declaration and distribution of a stock dividend. Paid-in Capital is increased and Retained Earnings are decreased by the same amount. So there is no effect on total Stockholders' Equit

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