Question

On January 1, 2020, Frontier Corporation had $1,000,000 of common stock outstanding that was issued at par. It also had retained earnings of $750,000. The company issued 40,000 shares of common stock at par on July 1 and earned net income of $400,000 for the year. Journalize the declaration of a 15% stock dividend on December 10 2019, for the following independent assumtions.a. Par value is $10, and market price is $18. b. Par value is $5, and market price is $20.

Answer 1

Part 1. Par value is $10, and market value is $18

No. of stock outstanding = $1,000,000/10 (already issued) + 40,000 (newly shares) = 140,000 shares

15% stock dividend = 140,000 x 0.15 = 21,000  new shares

Journal Entry:

Dr Retained earnings $378,000 (21,000 x $18)

Cr Common stock $210,000 (21,000 x $10)

Cr Additional Paid-in-Capital $168,000  (21,000 x $8)

Part 2. Par value is $5, and market value is $20

No. of stock outstanding = $1,000,000/5 (already issued) + 40,000 (newly shares) = 240,000 shares

15% stock dividend = 240,000 x 0.15 = 36,000 new shares

Journal Entry:

Dr Retained earnings $720,000 (36,000 x $20)

Cr Common stock $180,000 (36,000 x $5)

Cr Additional Paid-in-Capital $540,000 (36,000 x $15)

Answer 2

The journal entry for the first part will be:

• Debit Retained earnings = (21,000 x $18) = $378,000
• Credit Common stock = (21,000 x $10) = $210,000
• Credit Additional Paid-in-Capital = (21,000 x $8) = $168,000

The journal entry for the second part will be:

• Debit Retained earnings = (36,000 x $20) = $720,000
• Credit Common stock = (36,000 x $5) = $180,000
• Credit Additional Paid-in-Capital =(36,000 x $15) = $540,000

Number of stock outstanding for A will be

= $1,000,000/10 + 40,000 = 140,000

15% stock dividend = 140,000 x 0.15 = 21,000

No. of stock outstanding for B will be:

= $1,000,000/5 + 40,000

= 240,000

15% stock dividend = 240,000 x 0.15 = 36,000

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