Requirement 1: Prepare the following journal entries
Date | Account Title and explanation | Debit | Credit |
Jan. 15 | Cash Dividends (80,300 × $1.10) | $88,330 | |
Dividends Payable - Common | $88,330 | ||
To record cash dividends declared | |||
Feb. 15 | Dividends Payable - Common | $88,330 | |
Cash | $88,330 | ||
To record cash dividend paid | |||
Apr. 15 | Stock Dividends (80,300 × 10% × $16) | $128,480 | |
Common Stock Dividends Distributable (80,300 × 10% × $10) | $80,300 | ||
Paid-in Capital in Excess of Par-Common Stock | $48,180 | ||
To record stock dividend declared | |||
May. 15 | Common Stock Dividends Distributable (80,300 × 10% × $10) | $80,300 | |
Common Stock - $10 Par | $80,300 | ||
To record stock dividend distributed | |||
July 1 | No journal entry is required | ||
A 2-for-1 stock split increases number of shares to 176,660 ((80,300 + 8,030) × 2) | |||
and reduces the par value of share to $5 | |||
Dec. 1 | Cash Dividends (176,660 × $0.80) | $141,328 | |
Dividends Payable - Common | $141,328 | ||
To record cash dividends declared | |||
Dec. 31 | Income Summary | $290,000 | |
Retained Earnings | $290,000 | ||
To close net income to retained earnings | |||
Dec. 31 | Retained Earnings | $128,480 | |
Stock Dividends | $128,480 | ||
To close stock dividends to retained earnings | |||
Dec. 31 | Retained Earnings | $229,658 | |
Cash dividends ($88,330 + $141,328) | $229,658 | ||
To close cash dividends to retained earnings |
Requirement 2: Post the entries as follows
Common Stock | ||||
Date | Explanation Ref. | Debit | Credit | Balance |
Jan. 1 | Balance | $803,000 | ||
May. 15 | $80,300 | $883,300 | ||
Jul. 1 | 2 for 1 split - new par $5 | |||
Common Stock Dividends Distributable | ||||
Date | Explanation Ref. | Debit | Credit | Balance |
Apr. 15 | $80,300 | $80,300 | ||
May. 15 | $80,300 | $0 | ||
Paid - in Capital in Excess of Par - Common | ||||
Date | Explanation Ref. | Debit | Credit | Balance |
Jan. 1 | Balance | $215,000 | ||
Apr. 15 | $48,180 | $263,180 | ||
Retained Earnings | ||||
Date | Explanation Ref. | Debit | Credit | Balance |
Jan. 1 | Balance | $536,000 | ||
Dec 31 | Net income | $290,000 | $826,000 | |
Dec 31 | Stock dividend | $128,480 | $697,520 | |
Dec 31 | Cash dividend | $229,658 | $467,862 | |
Cash Dividend | ||||
Date | Explanation Ref. | Debit | Credit | Balance |
Jan. 15 | $88,330 | $88,330 | ||
Dec 1 | $141,328 | $229,658 | ||
Dec 31 | $229,658 | $0 | ||
Stock Dividend | ||||
Date | Explanation Ref. | Debit | Credit | Balance |
Apr. 15 | $128,480 | $128,480 | ||
Dec 31 | $128,480 | $0 |
Requirement 3: Prepare the stockholders' equity section of balance sheet as follows
SP Inc | |
Balance Sheet (Partial) | |
December 31, 2020 | |
Stockholders' Equity: | |
Paid-in capital | |
Common stock, $5 par value, 176,660 shares | |
issued and outstanding | $883,300 |
Additional paid-in capital | |
in excess of par - common stock | $263,180 |
Total paid-in capital | $1,146,480 |
Retained Earnings | $467,862 |
Total stockholders' equity | $1,614,342 |
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