Question

On July 1, 2017, Jones Limited had the following share structure: Common shares (par $1; 200,000 authorized shares; 150,000 issued and outstanding) Contributed surplus Retained earnings 150,000 inoued and outstanding) $150.000 $ 150,000 88,000 172,000 Required: Complete the following table based on three independent cases involving share transactions: (Round your par value answers to 2 decimal places.) Case 1: The board of directors declared and issued a 10 percent stock dividend when the share price was $8 per share. Case 2: The board of directors declared and issued a 100 percent stock dividend when the share price was $8 per share. Case 3: The board of directors voted a 2-for-1 stock split. The share price prior to the split was $8 per share. Case 1 Case 2 Case 3 Items Before Share Transactions After 10% Stock Dividend After 100% Stock Dividend After Stock Split $ $ $ 0 $ 0 $ Number of shares outstanding Par per share Common shares account Contributed surplus Retained Earnings Total shareholders' equity 1.00 0 88,000 172,000 260,000 $ $ 0 $ 0 $

Answer 1

ANSWER:

As per the given question

Stock split is referred to as issue of shares to the existing shareholders in the ratio of their current holding Stock Dividend is issue of additional shares instead of dividend payment in lieu of cash payment to the shareholders of the company.

The table below illustrates each case : Case 1 Case 2 After After 10% 100% Stock Stock Dividend Dividend Before Stock Transaction Case 3 After 10% Stock Split Items 150000 Number of shares outstanding Par per share Common stock Additional Paid In capital Retained Earnings Total stock Holders' Equity Si $150,000 88000 172000 $410,000 165000 300000 300000 $1 si s0.5 $165,000 $300,000 $150,000 193000 88000 88000 52000 22000 172000 $410,000 $410,000 $410,000

Case 1: Under this, the board of directors declared and issued a 10% stock dividend when the price of the share is $8 Additional number of shares issued in the form of stock dividend is Additional shares = Outstanding shares x Stock dividend issued = 150,000 x10% - 15,000 shares Total number of outstanding shares after the issue of stock dividend is Number of outstanding shares = 150,000 + 15,000 - 165,000 Since the stock dividend issued is small (less than 20-25%), the stock dividends are recorded at the total market value of shares with the par value recorded in Common stock and the excess in Additional paid-in-capital. Stock dividend - Additional Shares issued x Market value per share = 15,000 x $8 -$120,000 Amount that is transferred from Retained earnings to Common stock account is Common stock account - Additional Shares issued x Par value per share = 15,000 x S1 - $15,000 The remaining amount is transferred to Additional paid-in-capital account. Additional paid-in-capital = $88,000 + $105,000 = $193,000

Case 2: For the stock dividend issued is 100%, entire amount of dividend will be transferred from retained earnings to additional paid-in capital. Since it is a large stock amount, Market price need not to be considered Number of outstanding shares = 150,000 x 2 = 300,000 shares The decrease in the par value per share offsets the increase in the number of shares, so the financial position of the company is not affected and no journal entry is needed

Case 3: The stock split increases the total number of authorized shares such as 2-for-1 Stock split reduces the per share par value of its stock from $1 to $0.5 and doubles the number of shares outstanding. Number of outstanding shares = 150,000 x 2 = 300,000 shares The decrease in the par value per share offsets the increase in the number of shares, so the financial position of the company is not affected and no journal entry is needed.

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