Question

During 2020, Red Dragon Corporation had the following transactions and events: Issued par value preferred stock for cash at par value. 2. Issued par value common stock for cash at an amount greater than par value. 3. Completed a 2 for 1 stock split in which the $10 par value common stock was changed to $5 par value stock. 4. Declared a small stock dividend when the market value was higher than the par value. 5. Declared a cash dividend. 6. Made a prior period adjustment for understatement of net income. 7. Issued par value common stock for cash at par value. 8. Paid the cash dividend. 9. Issued the shares of common stock required by the stock dividend declaration in 4. above. Indicate the effect(s) of each of the foregoing items on the subdivisions of stockholders' equity. Paid-in Capital Item Capital Stock Additional Paid-in Capital Retained Earnings 1. 2. 3. 4. 5. 6.

Answer 1

Solution

Paid-in Capital
Item	Capital stock	Additional paid in capital	Retained earnings
1	Increase
2	Increase	Increase
3
4		Increase	Decrease
5			Decrease
6			Increase
7	Increase
8
9	Increase

Consider blank spaces as no effect.

.

In transaction 3 the stock split will have no effect on total paid in capital.

Payment of dividend will no affect paid in capital although declaration of dividend will reduce retained earnings.