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The balance sheet of Consolidated Paper, Inc., included the following shareholders' equity accounts at December 31, 2020:

  Paid-in capital:   Preferred stock, 8.8%, 90,000 shares at $1 par$90,000 Common stock, 364,000 shares at $1 par 364,000 Paid-in capital—excess of par, preferred 1,437,000 Paid-in capital—excess of par, common 2,574,000 Retained earnings 9,735,000 Treasury stock, at cost; 4,000 common shares (44,000)Total shareholders' equity$14,156,000

During 2021, several events and transactions affected the retained earnings of Consolidated Paper.

Required:

1. Prepare the appropriate entries for these events:

1. On March 3, the board of directors declared a property dividend of 240,000 shares of Leasco International common stock that Consolidated Paper had purchased in January as an investment (book value: $700,000). The investment shares had a fair value of $3 per share and were distributed March 31 to shareholders of record March 15.
2. On May 3, a 5-for-4 stock split was declared and distributed. The stock split was effected in the form of a 25% stock dividend. The market value of the $1 par common stock was $11 per share.
3. On July 5, a 2% common stock dividend was declared and distributed. The market value of the common stock was $11 per share.
4. On December 1, the board of directors declared the 8.8% cash dividend on the 90,000 preferred shares, payable on December 28 to shareholders of record December 20.
5. On December 1, the board of directors declared a cash dividend of $0.50 per share on its common shares, payable on December 28 to shareholders of record December 20.

2. Prepare the shareholders' equity section of the balance sheet for Consolidated Paper, Inc., at December 31, 2021. Net income for the year was $810,000.

1.

Record any necessary adjustments to the Equity securities account as a result of the property dividend declaration.

Record the declaration of the property dividend.

Record the entry on the date of record.

Record the distribution of the property dividend.

Record the declaration and distribution of the stock split effected in the form of a stock dividend.

Record the declaration and distribution of the stock dividend.

Record entry for cash dividend on preferred stock on date of declaration.

Record the entry on the date of record.

Record the payment of cash dividends to preferred shareholders.

Record the declaration of cash dividends to common shareholders.

Record the entry on the date of record.

Record the payment of cash dividends to common shareholders.

General Journal Stock Dividend Complete the below table to calculate the stock dividend. Stock Dividend Number of outstanding shares Stock dividend percentage (%) Number of shares to be issued Value of stock dividend

Answer 1

Requirement 1

a.   March 3—declaration date

Investment in Leasco International stock ........................................            20,000
     Gain on appreciation of investment ($720,000 – 700,000).........            20,000

Retained earnings (240,000 shares at $3 per share)..........................          720,000
     Property dividends payable ........................................................                                  720,000

March 15—date of record
                     no entry

March 31—payment date
Property dividends payable .............................................................          720,000
     Investment in Leasco International stock ...................................                                  720,000

b.   May 3

Paid-in capital—excess of par, common*........................................            90,000
     Common stock (25% x [364,000 – 4,000] shares at $1 par) .......                                    90,000

*alternatively, retained earnings may be debited.

c.   July 5

Retained earnings (9,000* x $11 per share).....................................            99,000
     Common stock (9,000* x $1 par)................................................                                      9,000
     Paid-in capital—excess of par, common (difference)..................                                    90,000

* 2% x [360,000 + 90,000 shares] = 9,000 additional shares

d.   December 1—declaration date

Retained earnings.............................................................................              7,920
     Cash dividends payable ($90,000 par x 8.8%)............................                                      7,920

December 20—date of record
                     no entry

December 28—payment date
Cash dividends payable ...................................................................              7,920                       
     Cash ............................................................................................                                      7,920

e.   December 1—declaration date

Retained earnings.............................................................................          229,500
     Cash dividends payable (459,000* x $.50).................................                                  229,500

* 360,000 + 90,000 + 9,000 = 459,000 shares

December 20—date of record
                     no entry

December 28—payment date
Cash dividends payable ...................................................................          229,500
     Cash ............................................................................................                                  229,500

Requirement 2

CONSOLIDATED PAPER, INC.

[Shareholders’ Equity section]

December 31, 2021

Paid-in capital:
Preferred stock, 8.8%, 90,000 shares at $1 par                                      $        90,000
Common stock, 463,000¹shares at $1 par                                                      463,000
Paid-in capital—excess of par, preferred                                                    1,437,000
Paid-in capital—excess of par, common                                                     2,574,000 ²

Retained earnings                                                                                     9,488,580 ³

Treasury stock, at cost; 4,000 common shares                                                (44,000)
Total shareholders’ equity                                                                    $14,008,580

1 364,000 + 90,000 + 9,000 = 463,000 shares

2 $2,574,000 – 90,000 + 90,000 = $2,574,000

3 $9,735,000 – 720,000 – 99,000 – 7,920 – 229,500 + 810,000 = $9,488,580