Question

Share Capital

a)List three important dates with respect to dividends ( 3 marks).

b) 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

Answer the following three independent questions using the above information:

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

Sol:

a) Three important dates with respect to dividends are date of declaration, date of record and date of payment.

b) (i)

Retained earnings A/c Dr $1,000,000

Common Stock Distributable Dividend A/c Cr $1,000,000

(record of issuance of stock dividend of 2,000,000 × 5% ×$10)

(ii) No journal entry required instead a memo entry is done to record the stock split and the no. of shares which will be in this case 4,000,000 will be recorded in the balance sheet.

(iii) EPS = Net income / No. of shares outstanding

= $3,000,000 / 1,000,000 = $3