Question

Healthy Life Co. is an HMO for businesses in the Fresno area. The following account balances appear on Healthy Life's balance sheet: Common stock (1,000,000 shares authorized; 500,000 shares issued), $4 par, $2,000,000; Paid-in capital in excess of par-common stock, $900,000; and Retained earnings, $33,875,000. The board of directors declared a 3% stock dividend when the market price of the stock was $14 a share. Healthy Life reported no income or loss for the current year. Required: a. Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates. Refer to the Chart of Accounts for exact wording of account titles. b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders' equity. c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid- in capital, (2) total retained earnings, and (3) total stockholders'equity.

Answer 1

Answers

• Workings

A	No. of shares outstanding	500000
B = A x 3%	Stock Dividend shares	15,000
C	Market Price per share	$14
D	Par Value per share	$4
E = C - D	Capital in excess of Par per share	$10
F = B x C	Total Stock Dividend	$210,000
G = B x D	Amount allocated to Common Stock at Par	$60,000
H = B x E	Paid in Capital in excess of Par - Common Stock	$150,000

• [1]

	Accounts title	Debit	Credit
a1	Stock Dividends	$210,000
	Stock Dividends Distributable		$60,000
	Paid in Capital in excess of Par - Common Stock		$150,000
	(Dividend declared)
a2	Stock Dividends Distributable	$60,000
	Common Stock		$60,000
	(Dividend distributed)

• [2] Before

Total Paid in Capital	$2,900,000	[2000000+900000]
Total Retained earnings	$33,875,000
Total Stockholder's Equity	$36,775,000

• [3] After

Total Paid in Capital	$3,110,000	[(2900000 + 210000)]
Total Retained earnings	$33,665,000	[$33875000 - 210000]
Total Stockholder's Equity	$36,775,000