On January 1, 2011, Argentina Corporation had the following stockholders\' equit

Question

On January 1, 2011, Argentina Corporation had the following stockholders' equity accounts. Common Stock ($20 par value, 75,000 shares issued and outstanding) $1,500,000 Paid-in Capital in Excess of Par Value 200,000 Retained Earnings 600,000 During the year, the following transactions occurred. Feb. 1 Declared a $1 cash dividend per share to stockholders of record on February 15, payable March 1. Mar. 1 Paid the dividend declared in February. Apr. 1 Announced a 2-for-1 stock split. Prior to the split, the market price per share was $36. July 1 Declared a 10% stock dividend to stockholders of record on July 15, distributable July31. On July 1, the market price of the stock was $13 per share. 31 Issued the shares for the stock dividend. Dec. 1 Declared a $0.50 per share dividend to stockholders of record on December 15, payable January 5, 2012. 31 Determined that net income for the year was $350,000. Prepare dividend entries and stockholders' equity section.

Explanation / Answer

On Jan. 1, 2011, A corp had the following stockholder's equity accounts.
Common Stock ($20 par value, 75,000 shares issued and outstanding) 1,500,000
Paid-in Capital in excess of par value 200,000
Retained Earnings 600,000

you solve it like this

Feb. 1 Declared a $1 cash dividend per share to stockholders of record on Feb. 15, payable March 1.
Dr Cash Dividends 75,000
Cr Dividends Payable 75,000

Mar. 1 Paid the dividend declared in Feb.
Dr Dividends Payable 75,000
Cr Cash 75,000

Apr. 1 Announced a 2-for-1 stock split. Prior to the split, the market price per share was $36.
No journal entry necessary. But take note that there are now 150,000 common shares outstanding with a par value of $10.

July 1 Declared a 10% Stock dividend to stockholders of record on july 15, distributable July 31. On july 1, the market price of the stock was $13 per share.
Dr Stock Dividends 195,000 (150,000 x 10% x $13)
Cr Stock Dividends Distributable 150,000 (150,000 x 10% x $10)
Cr Paid-In Capital in Excess of Par 45,000

July 31 Issued the shares for the stock dividend
Dr Stock Dividends Distributable 150,000
Cr Common Stock 150,000
*Note: There are now 165,000 common shares outstanding

Dec. 1 Declared a $.50 per share dividend to stockholders of record on Dec. 15, payable Jan. 5, 2012.
Dr Cash Dividends 82,500 (165,000 x $.50)
Cr Dividends Payable 82,500

Dec. 31 Determined that net income for the year was $350,000.
No journal entry necessary. This is just informational to make closing entries.

Journalize the closing entries for net income and dividends
Dr Income Summary 350,000
Cr Retained Earnings 350,000

75,000 + 195,000 + 82,500 = 352,500 Dividends
Dr Retained Earnings 352,500
Cr Dividends 352,500

Common Stock ($10 par value, 165,000 shares issued and outstanding) $1,650,000
Paid-in Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . .245,000
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 597,500
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,492,500

important notes:

If you notice, the only transactions that had effect on TOTAL Stockholders' Equity were the CASH Dividends and the net income. The other transactions just moved money from one Stockholders' Equity account to another.

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