Healthy Life Co. is an HMO for businesses in the Fresno area. The following account balances appear on Healthy Life’s balance sh
eet: Common stock (3,000,000 shares authorized; 2,200,000 shares issued), $15 par, $33,000,000; Paid-in capital in excess of par—common stock, $9,000,000; and Retained earnings, $89,550,000. The board of directors declared a 5% stock dividend when the market price of the stock was $18 a share. Healthy Life reported no income or loss for the current year.
A. Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates.
B. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.
C. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.
A. Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates.
B. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.
C. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.
1 answer:
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Answer:
b. In the first economy, the spending multiplier is greater than in the second economy. In the third economy, the spending multiplier is undefined
Explanation:
This can be easily understood by going through some calculations in a spending multiplier formula.
WORKINGS
The formula for Spending Multiplier =
Spending Multiplier
Economy 1: Multiplier = = 2
Economy 2: Multiplier = = 1
Economy 3: Multiplier = = undefined
Note: MPS can be abbreviated as Marginal propensity to save
As we can see here economy 1 is 50% greater than economy 2 and economy 3 is undefined because they spend whole dollar they earn additionally.
On behalf of the above calculations, option B is a perfect match!