Question

Selected transactions completed by Canyon Ferry Boating Corporation during the current fiscal year are as follows. Journalize the transactions. If no entry is required, select "No Entry Required" and leave the amount boxes blank. If an amount box does not require an entry, leave it blank. Jan. 8. Split the common stock 2 for 1 and reduced the par from $100 to $50 per share. After the split, there were 300,000 common shares outstanding. Jan. 8 Apr. 30. Declared semiannual dividends of $0.60 per share on 16,000 shares of preferred stock and $0.22 per share on the common stock payable on July 1. Apr. 30 July 1. Paid the cash dividends. July 1 Oct. 31. Declared semiannual dividends of $0.60 per share on the preferred stock and $0.11 per share on the common stock (before the stock dividend). In addition, a 5% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $56. Oct. 31 Oct. 31 Dec. 31. Paid the cash dividends and issued the certificates for the common stock dividend. Dec. 31 Dec. 31

Answer 1

Answer:

Canyon Ferry Boating Corporation

Journal Entries:

                                                                      Debit          Credit

Jan. 8:  Stock Split

Jan. 8: Dividends: Preferred                         $9,600

           Dividends: Common Stock             $66,000

           Dividends Payable                                               $75,600

To record semiannual dividends declared.

July 1:  Dividends Payable                          $75,600

           Cash Account                                                     $75,600

To record the payment of the cash dividends.

Oct. 31: Dividends: Preferred                        $9,600

           Dividends: Common Stock             $33,000

           Dividends Payable                                               $42,600

To record semiannual dividends declared.

Oct. 31: Dividends: Common Stock          $750,000

            Dividends Payable                                               $750,000

To record 5% dividend declared on the common stock.

Dec. 31: Dividends Payable                          $42,600

           Cash Account                                                     $42,600

To record the payment of the cash dividends.

Dec. 31: Dividends Payable                    $750,000

             Common Stock                                              $750,000

To record the issue of certificates for the common stock dividend.

Explanation:

a) A decision by a company's board of directors to increase the number of outstanding shares through the issue of more shares to current shareholders is called a stock split.  The purpose is to lower the market price of stock to a comfortable range for most investors, thereby increasing the liquidity of the shares.  For example, in a 2-for-1 stock split, an additional share is given for each share held by a shareholder.   The decision usually lowers the stock price and increases the number of shares by the same ratio, it does not necessitate for accounting records.

b) A stock dividend is payment to shareholders in the form of additional shares in the company, rather than as cash. There is no taxation on stock dividends until the shares granted are sold by their owners.