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Yellow Company has 400,000 shares of $10 par value common stock outstanding. During the year, Yellow...

  1. Yellow Company has 400,000 shares of $10 par value common stock outstanding. During the year, Yellow declared a 12% stock dividend when the market price of the stock was $20 per share. Six months later, Yellow declared a $.30 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by?
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Answer #1

Stocks Dividend issued:

Debit Credit
Stock Dividend (400,000 x 20 x 12%) 960,000
Common Stock dividend (400,000 x 10 x 12%) 480,000
Paid-in capital in excess of par (960,000 - 480,000) 480,000

Cash Dividend:

Debit Credit
Cash Dividend [400,000 + (400,000 x 12%)] x $0.3 134,400
Dividends Payable 134,400

Retained Earnings:

Debit Credit
Cash Dividend (960,000 + 134,400) 1,094,400
Dividends Payable 1,094,400

As a result of the dividends declared during the year, retained earnings decreased by: $1,094,400

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