On January 1, 2005, Alison Corp. had 88,000 shares of $12 par value common stock

Question

On January 1, 2005, Alison Corp. had 88,000 shares of $12 par value common stock issued and outstanding. There was a $2,000,000 balance in the Retained Earnings account at the beginning of the year. During the first quarter of the year, the following transactions occurred:

Jan. 10 Issued 12,000 shares of its own common stock for $120,000.
Jan. 20 Declared a cash dividend of $1 per share to stockholders of record on Jan. 12.
Jan. 31 Paid the $2 cash dividend declared on Jan. 18.
Feb. 4 Purchased 2,000 shares of its own common stock for the treasury at $20 per share.
Feb. 16 Sold 1000 shares of the treasury stock purchased on Feb. 4 for $24 per share.
March 27 Declared a 2 for 1 stock split on outstanding shares.

Prepare a journal entry (show all computations)

Explanation / Answer

Jan. 10 Issued 12,000 shares of its own common stock for $120,000. 10 Jan'12 Cash Dr 120,000 Addl Paidup capital on Common Stock Dr 24,000 Treasury Stock Cr 144,000 (12000 Share of $12 Par = $144,000, So Own Shares (Treasury) were issued at Disc) Jan. 20 Declared a cash dividend of $1 per share to stockholders of record on Jan. 12. 20 Jan'12 Retained Earnings Dr 100,000 Dividend Payable Cr 100,000 (Dividen $1 per sharex 100,000 shares ) Jan. 31 Paid the $2 cash dividend declared on Jan. 18. 31 Jan12 Dividend Payable Dr 100,000 Cash Cr 100,000 (Div paid) Feb. 4 Purchased 2,000 shares of its own common stock for the treasury at $20 per share. 4 Feb12 Treasury Stock Dr 40,000 Cash Cr 40000 (2000 shares x$20 = $40,000) Feb. 16 Sold 1000 shares of the treasury stock purchased on Feb. 4 for $24 per share. 16 Feb12 Cash Dr 24000 Treasury Stock Cr 12000 Paid in Capital in Excess of Par Cr 12000 (Treasury stock 1000 shares of $12 par=12000, Paid up cap in excess 12000) March 27 Declared a 2 for 1 stock split on outstanding shares. The only journal entry needed for a stock split is a memo entry to note that the number of shares has changed and that the par value per share has changed. However, a typical journal entry with debits and credits is not needed since the total dollar amounts for the par value and other components of paid-in capital and stockholders’ equity do not change. So here, Alsion Corp has 99,000 shares of $12 par value stock and it declares a 2-for-1 stock split, the corporation will have 2*99000=198,000 shares with a par value of $6 per share. Before and after the stock split, the total par value is $12*99000 = $ 1,188,000 . Other account balances within stockholders’ equity also remain the same.

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