On July 1, 2013, Jones Corporation had the following capital structure: Required

Question

On July 1, 2013, Jones Corporation had the following capital structure: Required: Complete the following table based on three independent cases involving stock transactions: (Round your "per share" to 2 decimal places.) Case 1: The board of directors declared and issued a 10 percent stock dividend when the stock price was $8 per share. Case 2: The board of directors declared and issued a 100 percent stock dividend when the stock price was $8 per share. Case 3: The board of directors voted a 2-for-1 stock split. The stock price prior to the split was $8 per share.

Explanation / Answer

Answer:

Explanation:

Common stock = Number of shares outstanding * par per share

Case 1:

The 10% stock dividend is a small stock dividend, which is recorded at the market value of the stock at the time of dividend. Consequently, $80000 is transferred out of Retained Earnings (10% * 100000 shares * $8 market price per share), with $10000 going to common stock (10% * 100000 shares * $1 par value) and the $70000 excess ($80000 - $10000) going into the Additional paid -in capital.

Change in account balances:

Number of shares outstanding = 100000 + 10000 = 110000

Retained earnings balance = 170000 - 80000 = 90000

Additional paid in capital balance = 90000 + 70000 = 160000

Case 2:

The 100% stock dividend is a large stock dividend, which is recorded at the par value of the stock. Consequently,$100000 (100% * 100000 shares * $1 par value ) is moved from retained earnings to Common Stock account.

Change in account balances:

Number of shares outstanding = 100000 + 100000 = 200000

Retained earnings balance = 170000 - 100000 = 70000

Case 3:

The stock split did not change any account balances; its only effects were to:

Note: None of the cases changed total stockholders' equity ($360000), because they did not involve the disbursement of assets.

Case 1 Case 2 Case 3 Items Before stock transactions After 10% stock dividend After 100% stock dividend After stock split Number of shares outstanding 100000 110000 200000 200000 Par per share $                                               1.00 $                                         1.00 $                                            1.00 $                      0.50 Common stock $                                 1,00,000.00 $                           1,10,000.00 $                              2,00,000.00 $        1,00,000.00 Additional Paid- in capital $                                     90,000.00 $                           1,60,000.00 $                                  90,000.00 $            90,000.00 Retained earnings $                                 1,70,000.00 $                              90,000.00 $                                  70,000.00 $        1,70,000.00 Total stockholders' Equity $                                 3,60,000.00 $                           3,60,000.00 $                              3,60,000.00 $        3,60,000.00

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