Concept explainers
Recording and Comparing Cash Dividends, Stock Dividends, and Stock Splits
On January 1, Biofuel Corporation had the following capital structure:
Common stock ($0.10 par value) | $ 60,000 |
Additional paid-in capital | 1,900,000 |
800,000 | |
0 | |
19,000 |
Required:
Complete the table below for each of the three following independent eases:
Case 1: The board of directors declared a cash dividend of $0.02 per share.
Case 2: The board of directors declared and issued a 100 percent stock dividend when the stock was selling at $10 per share.
Case 3: The board of directors announced a 2-for-1 stock split. The market price prior to the split was $10 per share.
Items | Before Any Dividends | After Cash Dividend | After Stock Dividend | After Stock Split |
Common stock account | $60,000 | $ | $ | $ |
Par per share | $0.10 | $ | $ | $ |
Shares outstanding | # | # | # | # |
Additional paid-in capital | $1,900,000 | $ | $ | $ |
Retained earnings | $800,000 | $ | $ | $ |
Total stockholders’ equity | $ | $ | $ | $ |
Cash flows from financing activities | $19,000 | $ | $ | $ |
Case: 1
Compute the table below if the board of directors declared a cash dividend of $0.02 per share
Explanation of Solution
Dividends:
Dividends are the rewards to the stockholders for investing their money in the company. Payment of dividend depends upon the decision of the management.
Following is the table that shows the Comparative results (after cash dividends).
Particulars | Before any Dividend | After Cash Dividend |
Common stock account | $60,000 | $60,000 |
Par per share | $0.10 | $0.10 |
Shares outstanding |
$600,000 (1) | $600,000 |
Additional paid- in capital | $ 1,900,000 | $ 1,900,000 |
Retained earnings | $ 800,000 | $ 788,000 (2) |
Total stockholder’s equity | $2,760,000 | $2,748,000 |
Cash flows from financing activities | $19,000 |
$7,000 (3) |
Table (1)
Working notes:
Calculate shares outstanding before any dividend:
Calculate retained earnings after cash dividend:
Calculate cash flows from financing activities after cash dividend:
Case: 2
Complete the table below if the board of directors declared and issued a 100 percent stock dividend when the stock was selling at $10 per share.
Explanation of Solution
Stock dividend:
Stock dividend is the payment made in the form of additional shares to the existing shareholders of the company instead of making cash payment with respect to the ownership of shares exercised by the shareholders.
Following is the table that shows the Comparative results (after stock dividend).
Particulars | Before any Dividend | After Cash Dividend | After Stock Dividend |
Common stock account | $60,000 | $60,000 | $120,000 (4) |
Par per share | $0.10 | $0.10 | $0.10 |
Shares outstanding |
600,000 (1) | 600,000 | 1,200,000 (5) |
Additional paid-in capital | $ 1,900,000 | $ 1,900,000 | $1,900,000 |
Retained earnings | $ 800,000 | $ 788,000 (2) | $ 740,000 (6) |
Total stockholders’ equity | $2,760,000 | $2,748,000 | $2,760,000 |
Cash flows from financing activities | $19,000 | $7,000 (3) | $19,000 |
Table (2)
Working notes:
Calculate the value of common stock account after stock dividend:
Calculate the value of shares outstanding after stock dividend:
Calculate the value of retained earnings after stock dividend:
Case: 3
Complete the table below if the board of directors announced a 2-for-1 stock split and the market price prior to the split was $10 per share.
Explanation of Solution
Stock Splits:
It is a method of increasing the total number of outstanding shares thereby, reducing the market price of each share, however, keeping the corporation’s total market value constant.
Following is the table that shows the Comparative results (after stock split).
Particulars | Before any Dividend | After Cash Dividend | After Stock Dividend | After Stock Split |
Common stock account | $60,000 | $60,000 | $120,000 (4) | $60,000 |
Par per share | $0.10 | $0.10 | $0.10 | $0.05 (7) |
Shares outstanding |
600,000 (1) | 600,000 |
1,200,000 (5) | 1,200,000 (5) |
Additional paid-in capital | $ 1,900,000 | $ 1,900,000 | $1,900,000 | $1,900,000 |
Retained earnings | $ 800,000 | $ 788,000 (2) | $ 740,000 (6) | $ 800,000 |
Total stockholders’ equity | $2,760,000 | $2,748,000 | $2,760,000 | $2,760,000 |
Cash flows from financing activities | $19,000 | $7,000 (3) | $19,000 | $19,000 |
Table (3)
Working note:
Calculate the par value of per share after stock split:
Want to see more full solutions like this?
Chapter 11 Solutions
GB 112/212 MANAGERIAL ACC. W/ACCESS >C<
- Common stock transactions on the statement of cash flows Jones Industries received 600,000 from issuing shares of its common stock and 400,000 from issuing bonds. During the year, Jones Industries also paid dividends of 60,000. How are the effects of these transactions reported on the statement of cash flows?arrow_forwardThe following selected accounts appear in the ledger of EJ Construction Inc. at the beginning of the current fiscal year: During the year, the corporation completed a number of transactions affecting the stockholders equity. They are summarized as follows: a. Issued 500,000 shares of common stock at 8, receiving cash. b. Issued 10,000 shares of preferred 1% stock at 60. c. Purchased 50,000 shares of treasury common for 7 per share. d. Sold 20,000 shares of treasury common for 9 per share. e. Sold 5,000 shares of treasury common for 6 per share. f. Declared cash dividends of 0.50 per share on preferred stock and 0.08 per share on common stock. g. Paid the cash dividends. Instructions Journalize the entries to record the transactions. Identify each entry by letter.arrow_forwardThe income statement, statement of retained earnings, and balance sheet for Somerville Company are as follows: Includes both state and federal taxes. Brief Exercise 15-20 Calculating the Average Common Stockholders Equity and the Return on Stockholders Equity Refer to the information for Somerville Company on the previous pages. Required: Note: Round answers to four decimal places. 1. Calculate the average common stockholders equity. 2. Calculate the return on stockholders equity.arrow_forward
- Rebert Inc. showed the following balances for last year: Reberts net income for last year was 3,182,000. Refer to the information for Rebert Inc. above. Also, assume that the dividends paid to common stockholders for last year were 2,600,000 and that the market price per share of common stock is 51.50. Required: 1. Compute the dividends per share. 2. Compute the dividend yield. (Note: Round to two decimal places.) 3. Compute the dividend payout ratio. (Note: Round to two decimal places.)arrow_forwardRebert Inc. showed the following balances for last year: Reberts net income for last year was 3,182,000. Refer to the information for Rebert Inc. above. Also, assume that the market price per share for Rebert is 51.50. Required: 1. Compute the dollar amount of preferred dividends. 2. Compute the number of common shares. 3. Compute earnings per share. (Note: Round to two decimals.) 4. Compute the price-earnings ratio. (Note: Round to the nearest whole number.)arrow_forwardNewly formed S&J Iron Corporation has 188,000 shares of $3 par common stock authorized. On March 1, Year 1, S&J Iron issued 10,000 shares of the stock for $9 per share. On May 2, the company issued an additional 16,500 shares for $20 per share. S&J Iron was not affected by other events during Year 1. Required a. Record the transactions in a horizontal statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). If an element was not affected by the event, leave the cell blank. b. Determine the amount S&J Iron would report for common stock on the December 31, Year 1, balance sheet. c. Determine the amount S&J Iron would report for paid-in capital in excess of par. d. What is the total amount of capital contributed by the owners? e. What amount of total assets would S&J Iron report on the December 31, Year 1, balance sheet? Complete this question by entering your answers in the tabs below. Reg A…arrow_forward
- Newly formed S&J Iron Corporation has 161,000 shares of $3 par common stock authorized. On March 1, Year 1, S&J Iron issued 11,500 shares of the stock for $10 per share. On May 2, the company issued an additional 20,000 shares for $21 per share. S&J Iron was not affected by other events during Year 1. Required a. Record the transactions in a horizontal statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). If an element was not affected by the event, leave the cell blank. b. Determine the amount S&J Iron would report for common stock on the December 31, Year 1, balance sheet. c. Determine the amount S&J Iron would report for paid-in capital in excess of par. d. What is the total amount of capital contributed by the owners? e. What amount of total assets would S&J Iron report on the December 31, Year 1, balance sheet? Complete this question by entering your answers in the tabs below. Req A…arrow_forwardNewly formed S&J Iron Corporation has 195,000 shares of $4 par common stock authorized. On March 1, Year 1, S&J Iron issued 11,000 shares of the stock for $10 per share. On May 2, the company issued an additional 21,000 shares for $21 per share. S&J Iron was not affected by other events during Year 1. Required a. Record the transactions in a horizontal statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). If an element was not affected by the event, leave the cell blank. b. Determine the amount S&J Iron would report for common stock on the December 31, Year 1, balance sheet. c. Determine the amount S&J Iron would report for paid-in capital in excess of par. d. What is the total amount of capital contributed by the owners? e. What amount of total assets would S&J Iron report on the December 31, Year 1, balance sheet? Complete this question by entering your answers in the tabs below. Req A…arrow_forwardJust prior to the end of the fiscal year, Biofuel Corporation reported the following information: Common stock ($0.20 par value) Additional paid-in capital $ 70,000 2,000,000 900,000 Retained earnings Treasury stock Cash flows from financing activities Required: Complete the table below for each of the three following independent cases: Note: Round "Par per share" answers to 2 decimal places. Case 1: The board of directors declared a cash dividend of $0.02 per share. Case 2: The board of directors declared and issued a 100 percent stock dividend when the stock was selling at $12 per share. Case 3: The board of directors announced 2-for-1 stock split. The market price prior to the split was $20 per share. Items After Stock Dividend Common stock account Par value per share Shares outstanding Additional paid-in capital Retained earnings Total stockholders' equity Cash flows from financing activities Before Any Dividends $ $ $ $ $ 0 24,000 70,000 $ 0.2 2,000,000 900,000 24,000 After Cash…arrow_forward
- Fact Pattern: Jensen Corporation’s board of directors met on June 3 and declared a regular quarterly cash dividend of $.40 per share for a total value of $200,000. The dividend is payable on June 24 to all stockholders of record as of June 17. Excerpts from the statement of financial position for Jensen Corporation as of May 31 are presented as follows. Cash $ 400,000 Accounts receivable (net) 800,000 Inventories 1,200,000 Total current assets $2,400,000 Total current liabilities $1,000,000 Assume that the only transactions to affect Jensen Corporation during June are the dividend transactions. Question Jensen’s quick (acid test) ratio would be A.Decreased by the dividend declaration and increased by the dividend payment. B.Unchanged by the dividend declaration and decreased by the dividend payment. C.Unchanged by either the dividend declaration or the dividend payment. D.Decreased by the…arrow_forwardBeacon Corporation issued a 3 percent stock dividend on 37,000 shares of its $7 par common stock. At the time of the dividend, the market value of the stock was $26 per share. Required a. Compute the amount of the stock dividend. b. Show the effects of the stock dividend on the financial statements using a horizontal statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). If an element was not affected by the event, leave the cell blank. Complete this question by entering your answers in the tabs below. Required A Required B Compute the amount of the stock dividend. Stock dividend Required >arrow_forwardBeacon Corporation issued a 8 percent stock dividend on 35,000 shares of its $7 par common stock. At the time of the dividend, the market value of the stock was $30 per share. Required a. Compute the amount of the stock dividend. b. Show the effects of the stock dividend on the financial statements using a horizontal statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). If an element was not affected by the event, leave the cell blank. Complete this question by entering your answers in the tabs below. Required A Required B Show the effects of the stock dividend on the financial statements using a horizontal statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). If an element was not affected by the event, leave the cell blank. (Enter any decreases to account balances with a minus sign.)…arrow_forward
- Century 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:CengageFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub