HiTech Manufacturing Company has 1,000,000 shares of $1 par value capital stock
ID: 2398663 • Letter: H
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 $37 per share.
June
1
Declared a cash dividend of $0.88 per share.
July
1
Paid the $0.88 cash dividend 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.
a. Prepare journal entries to record the above transactions.
b. Compute the number of shares of capital stock outstanding at year-end.
c. What is the par value per share of HiTech Manufacturing stock at the end of the year?
d. Determine the effect of each of the following on total stockholders' equity: stock split, declaration and payment of a cash dividend, declaration and distribution of a stock dividend.
Apr.
30
Distributed additional shares of capital stock in a 2-for-1 stock split. Market price of stock was $37 per share.
June
1
Declared a cash dividend of $0.88 per share.
July
1
Paid the $0.88 cash dividend 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.
Explanation / Answer
Answer
a.
Apr 30 Memorandum:Issued an additional 1000000 shares of capital stocks in a 2-for -1 stock split. par value reduced from $1 to $0.5 per share
June 1 Dividend $840000
to Dividend payable $840000
July 1 Dividend payable $840000
to Cash $840000
Aug 1 Retained earnings $1900000
to Stock dividedn to be distributed $50000
to Additional paid-in-capital:stock $1850000
(To record 5% stock dividend consisting of 100000 shares(2000000*5%) of 0.50 par value. market price = $19)
Sep 10 Stock dividend to be distributed $50,000
to Common stock $50,000
b. number of shares of capital stock outstanding at year-end = 1000000*2 +100000
= $2,100,000
c. par value per share of HiTech Manufacturing stock at the end of the year = $0.50
d. Stock split - no effect
declaration and payment of a cash dividend = decrease in retained earnings
declaration and distribution of a stock dividend - No effect
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