Question

DEF Corporation has the following share capital and retained earnings balances at December 31, 2018.

                                                                   

           Issued share capital           

           2,000,000 common shares                 $ 10,000,000

           

           Retained earnings                                   90,000,000  

                                                                     $ 100,000,000

i)If a 5% stock dividend is issued when the shares are trading for $ 10 per share, prepare the journal entry to record the stock dividend

ii)If a 2 for 1 stock split is announced, prepare the journal entry to record the stock split.

iii)If DEF Corporation had net income of $3,000,000 in 2018 and 1,000,000 common shares outstanding at December 31,2017. Calculate the earnings per share.

Answer 1

i) Journal Entries -

Stock Dividend = 2,000,000 Shares X 5% = 100,000 Shares @ $10 per share.

ii) Journal Entry for the stock split -

Stock Split = For every share held company split into 2 shares. This transaction does not affect the share capital held by the company. Only a number of shares affected due to this transaction. The price per share also changed.

iii) Earnings per Share -

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