Question

On January 1, 2018, Wirth Corporation, a publicly traded company, had these shareholders equity accounts: Common shares (unlimited number of shares authorized, 220,000 shares issued).........$2,200,000 Retained earnings..............................................................................................................1,080,000 Accumulated other comprehensive income..........................................................................120,000 During the year, the following transactions occurred: Jan. 15 Declared a $1 per share cash dividend to shareholders of record on January 31, payable February 15. Apr. 16 Declared a 10% stock dividend to shareholders of record on April 30, distributable May 16. On April 16, April 30, and May 15, the share prices were $15, $13.50, and $14, respectively. Oct. 1 Effected a 2-for-1 stock split. On October 1, the share price was $20. Dec. 31 Determined that net income for the year was $700,000. Instructions (a) Record the above transactions, including any required entries to close dividends and net income. (b) Open T accounts as required and post to the shareholders equity accounts. (c) Prepare a statement of changes in equity for the year. (d) Prepare the shareholders equity section of the statement of financial position at December 31.

Answer 1

(a)	Date	Account titles and explanation					Debit	Credit
	Jan 15.	Dividends			(220000*1)		220000
		Dividend payable						220000
		(Dividend declared)
	Jan 31.	No entry
	Feb 15.	Dividend payable					220000
		Cash						220000
		(Dividend paid)
	Apr 16.	Stock dividend			(220000*10%*15)		330000
		Common shares distributable			(220000*10%*10)			220000
		Paid-in capital in excess of par-common stock						110000
		(Stock dividend declared)
	Apr 30.	No entry
	May 15.	Common shares distributable					220000
		Common shares						220000
		(Stock dividend distributed)
	Oct 1.	No entry
	Dec 31.	Income summary					700000
		Retained earnings						700000
		(Net income recorded)
	Dec 31.	Retained earnings					550000
		Dividends						220000
		Stock dividend						330000
		(Dividend closed)
(b)		Common shares				Paid-in capital in excess of par-common stock
	Date	Debit	Date	Credit		Date	Debit	Date	Credit
			Jan 1.	2200000				Jan 1.	0
			May 15.	220000				Apr 16.	110000
		0		2420000			0		110000
			Bal.	2420000				Bal.	110000
		Retained earnings				Accumulated other comprehensive income
	Date	Debit	Date	Credit		Date	Debit	Date	Credit
	Dec 31.	550000	Jan 1.	1080000				Jan 1.	120000
			Dec 31.	700000
		550000		1780000			0		120000
			Bal.	1230000				Bal.	120000
c)			Statement of changes in equity
						Common shares	Paid-in capital in excess of par-common stock	Retained earnings	Accumulated other comprehensive income
	Beginning balance					2200000	0	1080000	120000
	Cash dividend paid							-220000
	Stock dividend paid					220000	110000	-330000
	Net income							700000
	Ending balance					2420000	110000	1230000	120000
d)			Shareholder's equity
						$
	Common shares
	(Unlimited number of shares authorized,484000
	shares issued,par value $ 5)					2420000
	Paid-in capital in excess of par-common stock					110000
	Retained earnings					1230000
	Accumulated other comprehensive income					120000
	Total stockholder's equity					3880000
	Note:
	Par value for common shares at the beginning=2200000/220000=$10 per share
	Stock split of 2:1
	New par value=10*(1/2)=$ 5 per share
	Number of common shares before stock split=220000+22000=$ 242000
	Number of common shares after stock split=242000*(2/1)=484000 shares