Question

Q1. The stockholders' equity of Howell Company at July 31, 2018 is presented below:

Common stock, par value $20 $3,600,000

Paid-in capital in excess of par – common stock 160,000

Retained earnings 10,650,000

Total Stockholders’ Equity $14,410,000

On August 1, 2018, the board of directors of Howell declared a 15% stock dividend on the common stock, to be distributed on September 15th. The market price of Howell's common stock was $68 on August 1, 2018. Prepare the journal entries for Howell for both the date of declaration and the date of distribution.

Q2. Parker Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of $72,000 cash.

a. Give the entry for the issuance assuming the par value of the common stock was $5 and the fair value $30, and the par value of the preferred stock was $40 and the fair value $50. (Each valuation is on a per share basis and there are ready markets for each stock.)

b. Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market and the common stock has a fair value of $23 per share.

Answer 1

Q.1

on date of declaration of stock dividend:

Retained earnings a/c Dr 1,632,00

To Common Stock Dividend A/c 480,000

To Paid-in Capital in Excess of Par A/c 1,152,000

On date of distribution of dtock dividend:

Common Stock Dividend A/c Dr 480,000
To Common Stock A/c 480,000

[Workings
Stock dividend = 15%* No of shares issued*MKt Price on date of declaration of Stock div
= 15%*160,000*$68 = 1,632,000]

Q.2

a.

Cash A/c Dr 72,000

To Common Stock 10,000

To Paid-in Cap. in Excess of Par-common 44,000

To Preferred Stock 16,000

To Paid-in Cap. in Excess of Par-Preferred 2,000

b.

Cash A/c Dr 72,000

To Common Stock 10,000

To Paid-in Cap. in Excess of Par-Common 40,000

To Preferred Stock 16,000

Paid-in Cap. in Excess of Par-Preferred 6,000