Question

Need help ASAP, please

Mastery Problem: Corporations: Organization, Stock Transactions, and Dividends Pranks, Inc. Pranks, Inc. is a manufacturer of joke and novelty products for perpetrators of practical jokes. The corporation has paid several cash dividends throughout Year 6, the current year. It is also declaring a stock dividend to its stockholders as the calendar year-end approaches. You've been brought in as a consultant to assist with this process, and also to help determine whether some missing information can be determined before the distribution of the stock dividend is made. The company has two classes of stock: common stock and cumulative preferred stock. Number of common shares authorized 900,000 Number of common shares issued 750,000 Par value of common shares $20 Par value of cumulative preferred shares $30 $7,000,000 Paid-in capital in excess of par-common stock Paid-in capital in excess of par-preferred stock $0 $33,500,000 Total retained earnings before the stock dividend is declared No treasury share have been reissued. Preferred Dividends Common Dividends Total Cash Dividends Year Total Per Share Total Per Share Year 1 30,000 0.20 0 0.00 30,000 54,000 Year 2 54,000 0.36 0 0.00 0.09 Year 3 105,000 0.34 54,000 Year 4 135,000 0.15 51,000 45,000 45,000 45,000 Year 5 153,000 225,000 0.3 0.3 0.3 90,000 108,000 180,000 0.18 0.3 Year 6

Answer 1

Stock Dividend is the distribution of additional shares each shareholder in an amount proportional their current number of shares. There is no impact on the par value of the share as well as the total shareholders equity. When the Stock dividend is issued, "Retained Earnings' are debited based on the market values of the shares, "Common Stock" is credited by the par value of shares and amount above the par value is credited "Paid-in-Capital in excess of Par value of Common Stock"

Journal Entry Date Dec 1 Debit $390,000 Credit [(750000x 2%) < $26] $300,000 [(750000x 2%) < $26] $90,000 (750000x 2%) x $26] Account Title Retained Earnings Common Stock Dividend Distributable Capital in excess of Par - Common Stock (To record stock dividend declaration) Common Stock Dividend Distributable Common Stock (To record stock dividend distribution) Dec 31 $26,000 $13,000 Common Stock Capital in excess of Par - Common Stock Paid in Capital Before stock dividend Total Retained earnings Before stock dividend Total Stockholders' equity Before stock dividend $15,000,000 $7,000,000 $22,000,000 $33,500,000 $55,500,000 Common Stock Capital in excess of Par - Common Stock Paid in Capital Before After dividend Total Retained earnings After stock dividend Total Stockholders' equity After stock dividend $15,300,000 $7,090,000 $22,390,000 $33,110,000 $55,500,000