Organic Health Co. is an HMO for businesses in the Chicago area. The following a
ID: 2435857 • Letter: O
Question
Organic Health Co. is an HMO for businesses in the Chicago area. The following account balances appear on the balance sheet of Organic Health Co.: Common stock (300,000 shares authorized), $100 par, $10,000,000; Paid-In Capital in excess of par— common stock, $2,000,000; and Retained earnings, $45,000,000. The board of directors declared a 2% stock dividend when the market price of the stock was $125 a share. Organic Health Co. reported no income or loss for the current year.For a compound transaction, if an amount box does not require an entry, leave it blank. If no entry is required, select "No entry required" from the dropdown.
a1. Journalize the entry to record the declaration of the dividend, capitalizing an amount equal to market value.
Account Debit Credit
Stock dividends
Stock dividends Distributable
Paid in capital in Excess of Par-Common Stock
a2. Journalize the entry to record the issuance of the stock certificates.
Account Debit Credit
Stock Dividends Distributable
Common Stock
b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.
Total paid-in capital $
Total retained earnings $
Total stockholders' equity $
c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.
Total paid-in capital $
Total retained earnings $
Total stockholders' equity $
Explanation / Answer
a1. Journalize the entry to record the declaration of the dividend, capitalizing an amount equal to market value.
No. of shares = $10,000,000 / $100 = 100,000 shares
100,000 shares x 2% = 2,000 shares as Stock Dividend
Account Debit Credit
Stock dividends 2,000 shares x $125 $250,000
Stock dividends Distributable 2,000x100 $200,000
Paid in capital in Excess of Par-Common Stock $50,000
______________________________________________________________
a2. Journalize the entry to record the issuance of the stock certificates.
Account Debit Credit
Stock Dividends Distributable $200,000
Common Stock $200,000
_______________________________________________________________
b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.
Total paid-in capital $12,000,000 ($10M + Excess over par $2M)
Retained earnings $45,000,000
Total stockholders' equity $57,000,000 ($12M + $45M)
c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity.
Total paid-in capital $12,250,000 ($12M + $250T)
Total retained earnings $44,750,000 (45,000,000 - $250,000)
Total stockholders' equity $57,000,000
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