Question

The stockholders’ equity accounts of Martinez Company have the following balances on December 31, 2017. Common stock, $10 par, 312,000 shares issued and outstanding $3,120,000 Paid-in capital in excess of par—common stock 1,160,000 Retained earnings 5,340,000 Shares of Martinez Company stock are currently selling on the Midwest Stock Exchange at $37. Prepare the appropriate journal entries for each of the following cases. (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) A stock dividend of 5% is (1) declared and (2) issued. (b) A stock dividend of 100% is (1) declared and (2) issued. (c) A 2-for-1 stock split is (1) declared and (2) issued.

Answer 1

Answer:

retained earnings     577,200 debit

   stock dividends payable            577,200 credit

--to record declared stock dividends--

stock dividends payable   577,200 debit

               common stock                156,000 credit

               additional paid-in            421,600 credit

--issued stock dividends--

retained earnings    11,544,000 debit

   stock dividends payable     11,544,000 credit

--to record declared stock dividends--

stock dividends payable   11,544,000 debit

              common stock                      3,120,000 credit

              additional paid-in                 8,424,000 credit

--issued stock dividends--

A 2-for-1 stock split NO ENTRY

Explanation:

Stock dividends of 5%

Shares outstanding 312,000 x 5% x $37 market price

15,600 new shares x $ 37 per share = $ 577,200

First we declare the dividend payable, then we write-off the payable and increase equity.

Common stock for the face value and additional paid-in for the difference:

15,600 x 10 = 156,000

577,200 - 156,000 = 421,600

Stock Dividends of 100%

312,000 x 100% x 37 = 11,544,000

same entries as before but, with difference number

face value 312,000 x 10 = 3,120,000

additional paid-in 8,424,000

A 2-for-1 stock split

No entry is required as the company will have double shares but with halft the value each. It will not effect the total market capitalization.