Question

The common stock of Splish Inc. is currently selling at $125 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $65 per share. 9.80 million shares are issued and outstanding.

Prepare the necessary journal entries assuming the following. (Enter amounts in dollars. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(a)		The board votes a 2-for-1 stock split.
(b)		The board votes a 100% stock dividend.

Show your work.

Answer 1

(a)

when stock split is opted no journal entry is required.

only Memorandum indicating increase in number of shares to 19.6 Million (9.80 million *2) and reduction in par value to $5 ($10/2) should be prepared.

(b)

100% stock dividend

dividend = [9.80million shares * $10] = 98,000,000$

reduce the retained earnings by dividend amount and credit common stock.

100% stock dividend is issued so new 9.8 million shares will be issues at 10$.

	debit	credit
The following entry should be made on the declaration date
Retained Earnings [9,800,000*10$]	98,000,000
common stock dividend Distributable		98,000,000
When the 9.8million shares are distributed to the stockholders the following journal entry should be made :
common stock dividend Distributable	98,000,000
common stock		98,000,000