Cash Dividends, Stock Dividends, and Stock Splits HiTech Manufacturing Company h
ID: 2567089 • Letter: C
Question
Cash Dividends, Stock Dividends, and Stock Splits 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 Distributed additional shares of capital stock in a 2-for-1 stock split. Market price of stock was $35 per share. Apr. 30 June Declared a cash dividend of S0.60 per share July Paid the $0.60 cash dividend to stockholders. Aug. 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. (Your answers should be either increase, decrease, or no effect.)Explanation / Answer
the no. of shares now will be 1,000,000*2 = 2,000,000 shares.
par value reduced fron $1 to $ 0.5.no need to pass journal entry.simply make a disclosure in Balance sheet as
2,000,000 shares of $0.5 each.
dividend amount will be 2,000,000*0.6 = 1,200,000
Retained Earnings A/c Dr. 1,200,000
To Dividend Payable 1,200,000
Dividend Payable A/c Dr. 1,200,000 ,
to Cash/bank A/c 1,200,000
share 2,000,000 * 5% = 100,000 shares
value of the stock at the time of declaration $19. So stock dividend distribution = 100,000*19 =1,900,000
since the paid up value is $0.5 pershare. so Par Value of 100,000 will be 100,000*0.5 = $500,000
Retained Earnings A/c dr. $1,900,000
To Stock Dividend distributable $500,000
To Paid in capital in excess of par $1,850,000
sep 10 stock dividend distributable A/c dr. 50,000
To common stock 50,000
b) no. of shares outstanding at year end = 1,000,000+1,000,000+100,000=2,100,000
c) par value at year end $0.5 per share
d) Stock split = no effect
declaration and payment of cash dividend = retained earning decreased by the amount of dividend and so the total stock holders equity ( common stock + retained earnings) is decreased by the same anount.
distribution of stock dividend = paid in capital increased and retained earning decreased by thesame amount ,no effect on total stockholders equity.
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