Question

Cash dividends declared on the no par value common shares of Athens Corp. were as follows:...

Cash dividends declared on the no par value common shares of Athens Corp. were as follows:

1st quarter of 2020 $330,000
2nd quarter of 2020 350,000
3rd quarter of 2020 420,000
4th quarter of 2020 450,000


The 4th quarter cash dividend was declared on December 20, 2020, to shareholders of record on December 31, 2020, to be paid on January 9, 2021. In addition, Athens declared a 10% common stock dividend on December 1, 2020, when there were 400,000 shares issued and outstanding, and the market value of the common shares was $16 per share. The shares were issued on December 21, 2020.
What was the effect on Athens' shareholders' equity accounts during 2020 as a result of the above transactions?

Common Shares Retained Earnings
$300,000 credit $1,950,000 debit
$640,000 credit $2,190,000 debit
$540,000 credit $1,740,000 debit
$ -0-                  $1,550,000 debit
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Answer #1

Total cash dividend declared in 2020 = 330,000+350,000+420,000+450,000

= $1,550,000

Number of common shares outstanding = 400,000

Stock dividend declared = 10%

Number of common shares issued in the stock dividend = 400,000 x 10%

= 40,000

Market price per share = $16

Debit to retained earnings due to stock dividend = 40,000 x 16

= $640,000

Total debit to retained earnings = Cash dividend declared + Debit to retained earnings due to stock dividend

= 1,550,000+640,000

= $2,190,000

Credit to common shares = Number of common shares issued in the stock dividend x Market price per share

= 40,000 x 16

= $640,000

Second option is correct.

$640,000 credit $2,190,000 debit

Kindly comment if you need further assistance. Thanks‼!            

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