The stockholders\' equity section of Benton Corporation\'s balance sheet as of D

Question

The stockholders' equity section of Benton Corporation's balance sheet as of December 31, 2017 is as follows: Stockholders' Equity Common stock, $5 par value; authorized, 2,000,000 shares; issued, 400,000 shares Paid-in capital in excess of par Retained earnings $2,000,000 854,000 3,080,000 $5,934,000 The following events occurred during 2018: 1. Jan. 5 29,000 shares of authorized and unissued common stock were sold for $9 per share. 2. Jan. 16 Declared a cash dividend of 20 cents per share, payable February 15 to stock-holders of record on February 5. 3. Feb. 10 40,000 shares of authorized and unissued common stock were sold for $12 per share. 4, March 1 A 30% stock dividend was declared and issued. Fair value per share is currently $16. 5. April 1 A two-for-one split was carried out. The par value of the stock was to be reduced to $2.50 per share. Fair value on March 31 was $18 per share. 6. July 1 A 15% stock dividend was declared and issued. Fair value is currently $10 per share. 7. Aug. 1 A cash dividend of 20 cents per share was declared, payable September 1 to stockholders of record on August 21

Explanation / Answer

There can be two possible solution to the question based on two assumption. Assumption 1 : 30% stock dividends(considered as large stock dividends) issued on March 1 is to be taken at par value without considering fair value of share. Since its not small stock dividends(Less than 20% to 25%) It should be accounted using par value and not fair value. Assumption 2 : 30% stock dividends issued on March 1 is to be taken at fair value for the purpose of accounting. I am solving the question with assumption 1. However laws of some Nation account for such large stock dividends considering fair value of shares i.e. assumption 2 Solution with Assumption 1(suggested) Common Stock Item No. of shares Issued Total par Value Paid In Capital In Excess of Par Value Retained Earnings Beginning Balance-1/1/18 400000 2000000 854000 3080000 Event #1-Jan-05 29000 145000 116000 0 Balance 429000 2145000 970000 3080000 Event #2-Jan-16 -85800 Balance 429000 2145000 970000 2994200 Event #3-Feb-10 40000 200000 280000 0 Balance 469000 2345000 1250000 2994200 Event #4-Mar-01 140700 703500 -703500 Balance 609700 3048500 1250000 2290700 Event #5-April-01 609700 0 Balance 1219400 3048500 1250000 2290700 Event #6-July-01 182910 457275 1371825 -1829100 Balance 1402310 3505775 2621825 461600 Event #7-Aug-01 -280462 Balance 1402310 3505775 2621825 181138

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