Homework Answers
Answer:-
(a)Journal entries of Trapezium ltd to record the given share transactions:
| (Amount in$) | |||
| Date | Description | Debit | Credit |
| 31-12-2016 | Retained earnings | 410000 | |
| Stock dividend Distributable | 150000 | ||
| Paid-in-capital | 260000 | ||
| (Being stock dividend declared) | |||
| No entry for recording dividend | |||
| 05-01-2017 | Stock dividend distributable | 150000 | |
| Ordinary stock | 150000 | ||
| (Being share dividend distributed) | |||
working note:-
| Calculation of market price per share(before declaration of dividend) | ||
| S.NO. | Particulars | Amount($) |
| A | Ordinary shares values | 1500000 |
| B | Retained earnings | 2000000 |
| C | Reserves | 600000 |
| D | Net worth(A+B+C) | 4100000 |
| E | Number of Ordinary shares outstanding | 1500000 |
| F | Market price per share(D/E) | 2.733333 |
Number of shares to be issued as stock dividend is 10% of 1500000 i,e.150000 shares to be issued as stock dividend @ market price,
So the retained earnings to debited with 150000*$2.733333=$410000
(b)Calculation of balance of retained earnings after these share transactions have taken place is as follows:
| Particulars | Amount($) |
| Retained earnings before dividend distribution | 2000000 |
| Less:Dividend distributed out of retained earnings | 410000 |
| Retained earnings after stock dividend distribution | 1590000 |
Important student note:-In the given question the board of directors of company declared 10% of share dividend. so with this point we should come to a conclusion that the company have distributed share dividend.
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