Question

Problem 12 The owners' equity accounts for Leahy, Inc. on January 1, 2015 are as follows: Common stock, no par value, 500,000 shares issued and outstanding $5,000,000 Retained earnings 3,000,000 Shares of Leahy's common stock are selling at this time for $30 per share. Make the necessary entries for the following cases: A 10% stock dividend is declared and issued. A 50% stock dividend is declared and issued. A 2-for-1 stock split is declared and issued.

Answer 1

Journal Entries:

Account Titles and Explanation	Debit	Credit
Stock Dividends (500,000 shares * 10/100 = 50,000 shares * $30)	$1,500,000
Common Stock Dividends Distributable		$1,500,000
(To record the declaration of 10% stock dividends)
Common Stock Dividends Distributable	$1,500,000
Common Stock ($5,000,000/500,000 shares = $10 * 50,000 shares)		$500,000
Paid-in Capital in Excess of Par Value ($30 - $10 = $20 * 50,000 shares)		$1,000,000
(To record the distribution of 10% stock dividend)
Account Titles and Explanation	Debit	Credit
Stock Dividends (500,000 shares * 50/100 = 250,000 shares * $30)	$7,500,000
Common Stock Dividends Distributable		$7,500,000
(To record the declaration of 50% stock dividends)
Common Stock Dividends Distributable	$7,500,000
Common Stock ($5,000,000/500,000 shares = $10 * 250,000 shares)		$2,500,000
Paid-in Capital in Excess of Par Value - Common stock ($30 - $10 = $20 * 250,000 shares)		$5,000,000
(To record the distribution of 50% stock dividend)
Account Titles and Explanation	Debit	Credit
Common Stock (500,000 * $10)	$5,000,000
Common Stock (500,000 * 2 = 1,000,000 shares); ($5,000,000/1,000,000 = $5 * 1,000,000 shares)		$5,000,000
(To record the stock split for 2 shares for 1 share)
Note: In case of stock split, the number of shares will increase due to 2 shares issued for every 1 share so number of shares will increase and the price per share will decrease from $10 to $5 as the total amount of $5,000,000 remains same.