Problem 5. On January 1, 2016, Kem Corporation had $1,500,000 of common stock ou

Question

Problem 5. On January 1, 2016, Kem Corporation had $1,500,000 of common stock outstanding that was issued at par and retained earnings of $750.000. The company issued 30,000 shares of common stock at par on July 1 and earned net income of $400,000 for the year. Instructions Journalize the declaration of a 15% stock dividends on December 10, 2016 and the payment of the stock dividends on December 31, 2016, for the following two independent assumptions. (a) Par value is $10 and market value is $12. (b) Par value is $5 and market value is S9.

Explanation / Answer

a) Retained Earnings Dr                2,70,000

         To Dividend payable Cr                            2,70,000

(1500000/10=150000+30000=180000*1.5=270,000)

Dividend Payment entry

Dividend Payable Dr                           2,70,000

     To Cash Cr                                                    2,70,000

b) Retained Earnings Dr                2,47,500

         To Dividend payable Cr                              2,47,500

(1500000/5=300000+30000=330000*0.75=247,500)

Dividend Payment entry

Dividend Payable Dr                               2,47,500

     To Cash Cr                                                        2,47,500

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