Question

The stockholders’ equity of Palepu Company at December 31, 2015, appears below.

Common stock, $12 par value, 200,000 shares authorized;
82,000 shares issued and outstanding	$984,000
Paid-in capital in excess of par value	480,000
Retained earnings	305,000

During 2016, the following transactions occurred:

May 12	Declared and issued a 4% stock dividend; the common stock market value was $18 per share.
Dec. 31	Declared and paid a cash dividend of 75 cents per share.

a. Using the financial statement effects template, illustrate the effects of these transactions.
Use negative signs with answers when appropriate. When applicable, enter total amount for contributed capital.

	Balance Sheet									Income Statement
Transaction	Cash Asset	+	Noncash Asset	=	Liabilities	+	Contrib. Capital	+	Earned Capital	Revenues	-	Expenses	=	Net Income
5/12 Declared and issued stock dividend		+		=		+		+			-		=
12/31 Declared and paid cash dividend		+		=		+		+			-		=

b. Prepare the journal entries for these transactions.

General Journal
Date	Description	Debit	Credit
5/12	CashCommon stockAdditional paid-in capitalRetained earnings
	Common Stock
	CashCommon stockAdditional paid-in capitalRetained earnings
12/31	CashCommon stockAdditional paid-in capitalRetained earnings
	CashCommon stockAdditional paid-in capitalRetained earnings

Answer 1

(a)

	Balance Sheet	Income Statement
Transaction	Cash Asset	+	Noncash Asset	=	Liabilities	+	Contrib. Capital	+	Earned Capital	Revenues	-	Expenses	=	Net Income
5/12 Declared and issued stock dividend		+		=		+	59,040	+	(59,040)		-		=
12/31 Declared and paid cash dividend	(63,960)	+		=		+		+	(63,960)		-		=

b. Prepare the journal entries for these transactions.

Date	Description	Debit	Credit
May 12	Retained Earnings (3280 * 18)	59,040
	Common stock dividend distributable (3280 *12)		39,360
	Paid- in capital in excess of par		19,680
When the 3280 shares (82000 * 4%) are distributed to the stockholders, the following journal entry is made:
May 12	Common stock dividend distributable	59,040
	Common stock		59,040
When declared and paid cash dividend
Dec 31	Retained Earnings (85280 * 0.75)	63,960
	Cash		63,960