Question

Problem 5: Stock dividends (12 pts) On January 1, 2019, Las Polamas Inc had the following account balances in its shareholders equity accounts. Common stock, 30.01 par, 1,000,000 shares issued $10,000 Paid-in capital-excess of par, common 6,990,000 Retained earnings 4,000,000 During 2019, Las Polamas Inc. had several transactions relating to common stock March 8: Declared and distributed an 8% stock dividend on outstanding common stock. The fair value of the common stock is $8 per share on this date A 5-for-4 stock split was declared and distributed on outstanding common stock and effected in the form of a 25% stock dividend. The fair value of the stock was $7.50 on this date Aug 15: Required: a. Prepare journal entries to record the above two transactions (10 pts). March & Paid in Copital -excess of par 6400 Common stock 6400 10,08% 6406 690x8k Aug. is Retained Earnings Connor stat PIC- excess of por 15,000 2000 22XX 7.5: ISK b. Show the balance of common stock and paid-in capital-excess of par on December 31, 2019 (2 pts), Common Stock: 6400+ - +2,000 10,000 PIL-oan of Por: Gogom- 600 + 11000 6,996,600

Is the work correct? If not can someone help with the solutions?

Answer 1

Requirement a:

Date	Account title and explanation	Debit	Credit
March 8	Retained Earnings [80,000 x $8]	$640,000
	Common stock [80,000 x $0.01]		$800
	Paid-in Capital in Excess of Par-Common		$639,200
	[To record declaration and payment of stock dividends]
Aug. 15	No entry for stock split
	Retained Earnings [337,500 x $7.50]	$2,531,250
	Common stock [337,500 x $0.008]		$2,700
	Paid-in Capital in Excess of Par-Common		$2,528,550
	[To record declaration and payment of stock dividends]

Calculations:

		Shares	Par value
	Shares outstanding before stock issue [$10,000 ÷ $0.01]	1,000,000	$0.01
March 8	Stock dividends [1,000,000 x 8%]	80,000	$0.01
	Balance	1,080,000
Aug. 15	Stock split [1,080,000 x 5/4]	1,350,000	$0.008*
Aug. 15	Stock dividends [1,350,000 x 25%]	337,500	$0.008
	Balance	1,687,500

* Par value after stock split = $0.01 x (4/5) = $0.008

Requirement b:

Common stock (1,687,500 x $0.008)	$13,500
Paid in excess of par [6,990,000 + 639,200+2,528,550)	$10,157,750