Answer:
a. General Journal:
Date Description Debit Credit
Feb. 6
Stock Dividend (Retained earnings) $15,000
Stock Dividend Payable $15,000
To record the declaration of 5% stock dividend or new 1,500 shares
Feb. 15
Stock Dividends Payable $15,000
Common Stock $15,000
To record the distribution of the stock dividend
July 29:
Treasury Stock $17,000
Paid-in Capital in Excess of Par $28,900
Cash Account $45,900
To record the repurchase of 1,700 shares of treasury stock at $27 each.
Nov. 27:
Cash Dividend $2,980
Dividend Payable $2,980
To record the declaration of a $0.10 per share cash dividend on 29,800 common stock shares outstanding
b. Retained Earnings Statement for the year ended December 31, 2016:
Retained Earnings b/f $161,000
Dividends (stock) (15,000)
Dividends (cash) (2,980)
Ending balance
c. Stockholders' Equity Section of the Balance Sheet at December 31, 2016:
Paid-in Capital:
Common Stock—$10 Par Value; 350,000 shares
authorized, 31,500 shares issued and outstanding : $315,000
Treasury Stock, 1,700 shares (17,000)
Paid-ln Capital in Excess of Par—Common 281,100
Total Paid-in Capital 579,100
Retained Earnings 143,020
Total Stockholders' Equity $722,120
Explanation:
a) Stock Dividend: 5% of stock outstanding was 1,500 (30,000 x 5%). The effect of the stock dividend is to increase the Common Stock shares from 30,000 to 31,500 shares. This is also reflected in the Common Stock account at the par value of $10, totalling $15,000 (1,500 x $10). This is because the market value of $27 per share does not involve any cash flows for the entity, but an inflow for the stockholders who decide to sell their shares at that point. The Retained Earnings is also reduced by $15,000, just as it is in the case of cash dividend.
b) Paid-in Capital in Excess of Par:
beginning balance $310,000
Treasury stock (28,900)
ending balance $281,100
This account reflects the changes in Treasury stock above and below the par values. It is also used to record the above and below the par values when shares are issued.
c) Treasury Stock: This is a contra account to the Common Stock. It records the repurchase of entity's own stock. Two methods are allowed for accounting for treasury stock. One is the par value method, where the differences in par value are recorded in the Paid-in Capital in Excess of Par. The other method is the costing method, where the differences in par value are recorded in the Treasury stock account.
