Question

Shareholders’ Equity

1. Preferred shares cash dividends have been declared and paid. Common share cash dividends have been declared, but not paid. HEMI’s board of directors declared a 10% common stock dividend on November 1, 2019. Common shares for the stock dividends were issued to the existing common shareholders on December 30, 2019. However, the transaction has not been recorded in HEMI’s accounting records. HEMI is authorized to issue 50,000,000 common shares. HEMI issued 12,000,000 common shares on January 2, 2019 (i.e., these were the shares outstanding prior to the stock dividend). HEMI’s common shares are valued at $21 per share. The Accountant wants you to calculate the dollar amount to be assigned to the common shares issued as stock dividends and provide an adjusting journal entry to record the stock dividend.

Answer 1

	As it is a small stock dividend the entries have to be for
	the market price.
	The Journal entry would be:
	Retained earnings [1,200,000*21]	$    25,200,000
	Common stock		$      25,200,000
	When entries are passed at the time of occurrence of
	the events two journal entries would be required as
	below:
1-Nov-19	Retained earnings [1,200,000*21]	$    25,200,000
	Stock dividends payable-Common stock		$      25,200,000
	[To record declaration of stock dividends]
30-Dec-19	Stock dividends payable-Common stock	$    25,200,000
	Common stock		$      25,200,000
	[To record issue of shares]