Concept explainers
Shareholders’ equity transactions; statement of shareholders’ equity
• LO18–6 through LO18–8
Listed below are the transactions that affected the shareholders’ equity of Branch-Rickie Corporation during the period 2018–2020. At December 31, 2017, the corporation’s accounts included:
($ in thousands) | |
Common stock, 105 million shares at $1 par | $105,000 |
Paid-in capital—excess of par | 630,000 |
970,000 |
a. November 1, 2018, the board of directors declared a cash dividend of $0.80 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
b. On March 1, 2019, the board of directors declared a property dividend consisting of corporate bonds of Warner Corporation that Branch-Rickie was holding as an investment. The bonds had a fair value of $1.6 million, but were purchased two years previously for $1.3 million. Because they were intended to be held to maturity, the bonds had not been previously written up. The property dividend was payable to shareholders of record March 13, to be distributed April 5.
c. On July 12, 2019, the corporation declared and distributed a 5% common stock dividend (when the market value of the common stock was $21 per share). Cash was paid in lieu of fractional shares representing 250,000 equivalent whole shares.
d. On November 1, 2019, the board of directors declared a cash dividend of $0.80 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
e. On January 15, 2020, the board of directors declared and distributed a 3-for-2 stock split effected in the form of a 50% stock dividend when the market value of the common stock was $22 per share.
f. On November 1, 2020, the board of directors declared a cash dividend of $0.65 per share on its common shares, payable to shareholders of record November 15, to be paid December 1.
Required:
1. Prepare the
2. Prepare comparative statements of shareholders’ equity for Branch-Rickie for the three-year period ($ in 000s). Net income was $330 million, $395 million, and $455 million for 2018, 2019, and 2020, respectively.
1.
Transactions related to shareholders’ equity
Stockholders’ equity: Stockholders’ equity is the remains of the assets after the owners pay off all the liabilities of the business. Therefore, shareholders’ equity is also referred to as net assets.
To Journalize: The transactions related to shareholders’ equity for the period 2018 to 2020.
Explanation of Solution
Transaction (a)
Declaration date: The date on which the board of directors of a corporation announces officially to distribute the dividends to its shareholders is referred as declaration date.
November 1, 2018–Declaration Date:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
November | 1 | Retained Earnings | 84,000,000 | ||
Cash Dividends Payable | 84,000,000 | ||||
(To record declaration of dividends) |
Table (1)
Working Notes:
Compute the amount of dividends payable.
Date of record: The date on which the company verifies the ownership of shares of the shareholders entitled to receive the dividends declared, is referred as date of record. No entry is recorded on this date.
November 15, 2018–Date of Record:
Do not record any entry for the transaction occurred on date of record for the following reasons:
- The dividends will not be paid for those who buy the stock after the date of record.
- The company does not record any transactions on the date of record.
- The ownership of shares alone is verified.
Payment date: The date on which the company pays or sends the cash dividend checks to the stockholders is known as payment date.
December 1, 2018–Payment Date:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2018 | |||||
December | 1 | Cash Dividends Payable | 84,000,000 | ||
Cash | 84,000,000 | ||||
(To record payment of dividends) |
Table (2)
Transaction (b)
Property dividend: Distribution of non-cash assets in the form of dividend is referred to as property dividend. It is otherwise known as dividend in kind.
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2019 | Investment in W Bonds | 300,000 | |||
March | 1 | Gain on Appreciation of Investment | 300,000 | ||
(To record gain on appreciated value of investment) |
Table (3)
Working Notes:
Compute the gain (loss) on investment.
March 1, 2019–Declaration Date:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2019 | |||||
March | 1 | Retained Earnings | 1,600,000 | ||
Property Dividends Payable | 1,600,000 | ||||
(To record declaration of dividends) |
Table (4)
March 13, 2019–Date of Record:
Do not record any entry for the transaction occurred on date of record.
April 5, 2019–Payment Date:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2019 | |||||
April | 5 | Property Dividends Payable | 1,600,000 | ||
Investment in Company G Stock | 1,600,000 | ||||
(To record payment of property dividends) |
Table (5)
Transaction (c)
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2019 | |||||
July | 12 | Retained Earnings | 110,250,000 | ||
Common Stock | 5,000,000 | ||||
Paid-in Capital in Excess of Par | 100,000,000 | ||||
Cash | 5,250,000 | ||||
(To record distribution of stock dividend) |
Table (6)
Working Notes:
Compute stock dividends amount.
Note: Refer to Equation (1) for value and computation of stock dividend shares.
Compute common stock value.
Note: Refer to Equation (1) for value and computation of stock dividend shares.
Compute excess of par value of shares.
Compute paid-in capital in excess value.
Note: Refer to Equations (1) and (2) for value and computation of stock dividend shares and excess of par value of share.
Compute cash paid by company in lieu of fractional shares.
Transaction (d)
November 1, 2019–Declaration Date:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2019 | |||||
November | 1 | Retained Earnings | 88,000,000 | ||
Cash Dividends Payable | 88,000,000 | ||||
(To record declaration of cash dividends) |
Table (7)
Working Notes:
Compute the amount of dividends payable.
November 15, 2019–Date of Record:
Do not record any entry for the transaction occurred on date of record.
December 1, 2019–Payment Date:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2019 | |||||
December | 1 | Cash Dividends Payable | 88,000,000 | ||
Cash | 88,000,000 | ||||
(To record payment of cash dividends) |
Table (8)
Transaction (e):
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2020 | |||||
January | 15 | Retained Earnings | 55,000,000 | ||
Common Stock | 55,000,000 | ||||
(To record distribution of stock dividend) |
Table (9)
Working Notes:
Compute stock dividends amount.
Transaction (f):
November 1, 2020–Declaration Date:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2020 | |||||
November | 1 | Retained Earnings | 107,250,000 | ||
Cash Dividends Payable | 107,250,000 | ||||
(To record declaration of cash dividends) |
Table (10)
Working Notes:
Compute the amount of dividends payable.
November 15, 2020–Date of Record:
Do not record any entry for the transaction occurred on date of record.
December 1, 2020–Payment Date:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) | |
2020 | |||||
December | 1 | Cash Dividends Payable | 107,250,000 | ||
Cash | 107,250,000 | ||||
(To record payment of cash dividends) |
Table (11)
2.
To Prepare: The comparative statements of shareholders’ equity for Corporation BR.
Explanation of Solution
Prepare comparative statement of shareholders’ equity for 2018 to 2020 for Corporation BR.
Corporation BR | ||||
Statement of Shareholders’ Equity | ||||
For the Years Ended December 31, 2018, 2019, and 2020 | ||||
(Amounts in Thousands) | ||||
Particulars | Common Stock | Additional Paid-in Capital | Retained Earnings | Total Shareholders’ Equity |
January 1, 2018 | $105,000 | $630,000 | $970,000 | $1,705,000 |
Net income | 330,000 | 330,000 | ||
Cash dividends | (84,000) | (84,000) | ||
December 31, 2018 | $105,000 | $630,000 | $1,216,000 | $1,951,000 |
Property dividends | (1,600) | (1,600) | ||
Common stock dividend | 5,000 | 100,000 | (110,250) | (5,250) |
Net income | 395,000 | 395,000 | ||
Cash dividends | (88,000) | (88,000) | ||
December 31, 2019 | $110,000 | $730,000 | $1,411,150 | $2,251,150 |
Stock split as stock dividend | 55,000 | (55,000) | ||
Net income | 455,000 | 455,000 | ||
Cash dividends | (107,250) | (107,250) | ||
December 31, 2020 | $165,000 | $675,000 | $1,758,900 | $2,598,900 |
Table (12)
Note: Refer to requirement 1 for computations of values.
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Chapter 18 Solutions
Intermediate Accounting
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