Question

Hubbard Company issued 500,000 shares of common stock, $4 par, for $25 cash per share on March 31, 20X1. Prepare the journal entry.

Hubbard Company declared and paid a cash dividend of $1 per share on March 31, 20X2. Prepare the journal entry. Assume only the 500,000 shares from requirement 1 are outstanding.

Hubbard Company had retained earnings of $10 million by March 31, 20X5. The market value of the common shares was $50 each. A common stock dividend of 5% was declared, and shares were issued on March 31, 20X5. Prior to the stock dividend 500,000 shares were outstanding. Prepare the journal entry. Also present a tabulation that compares the stockholders’ equity section before and after the declaration and issuance of the stock dividend. Include at the bottom of the tabulation the effects on the overall market value of the stock, the total shares outstanding, and the number of shares and percentage of ownership of an individual owner who originally bought 5,000 shares.

What journal entries would be made by the investor who bought 5,000 shares of Hubbard common stock and held this investment throughout the time covered in requirements 1, 2, and 3?

Refer to requirement 4. Suppose the investor sold 200 shares for $58 each the day after receiving the stock dividend. Prepare the investor’s journal entry for the sale of the shares.

Answer 1

Debit Credit 12,500,000 Date Account Titles & Explanation 20X1 31-Mar Cash (500000*25) Common Stock (500000*4) Paid in Capital in excess of Par (To reccord issue of common Stock) 2,000,000 10,500,000 16 500,000 20X2 31-Mar Retained Earnings (500000*1) Dividend Payable (To record declaration of dividend) 500,000 500,000 Dividend Payable Cash (To record payment of cash dividend) 500,000 1,250,000 20X5 31-Mar Retained Earnings (500000) *50*5% Common Stock Dividend Distributable Paid In Capital in excess of Par (To record stock dividend) 100,000 1,150,000 100,000 Common stock dividends distributable Common Stock (To record distribution of dividend) 100,000

Shareholders' equity Preferred stock Total Shares Outstanding Common stock Paid-in capital - excess of par Retained earnings Total Shareholder's Equity Before declaration After declaration of Stock Dividend of Stock Dividend 500,000 525,000 2,000,000 2,100,000 10,500,000 11,650,000 10,000,000 8,750,000 22,500,000 22,500,000