Question

(Entries for Stock Dividends and Stock Splits) The stockholders’ equity accounts of G.K. Chesterton Company have the following balances on December 31, 2017.

Common stock, \(10 par, 300,000 shares issued and outstanding \)3,000,000

Paid-in capital in excess of par—common stock 1,200,000

Retained earnings 5,600,000

Shares of G.K. Chesterton Company stock are currently selling on the Midwest Stock Exchange at $37.

Instructions

Prepare the appropriate journal entries for each of the following cases.

1. A stock dividend of 5% is declared and issued.
2. A stock dividend of 100% is declared and issued.
3. A 2-for-1 stock split is declared and issued.

Short answer

In the first case, the total Common Stock Dividend Distributable is $150,000,and in the second, it is $3,000,000.

Step-by-step solution

Meaning of Stock Dividend

Stock dividends are shares of stock given to shareholders as dividend payments rather than cash. A company issues stock dividends in the place of cash dividends when it has little liquid cash on hand

Preparing Journal Entries

S.no.	Particular	Folio	Debit $	Credit $
(a)	Retained Earnings		555,000
	Common Stock Dividend Distribution Distributable			150,000
	Paid-in Capital in Excess of Par-Common Stock			405,000
	To record issue of stock.
	Common Stock Dividend Distributable		150,000
	Common Stock			150,000
	To record the distribution of common stock.
(b)	Retained Earnings		3,000,000
	Common Stock Dividend Distributable			3,000,000
	To record the issue of dividends.
	Common Stock Dividend Distributable		3,000,000
	Common Stock			3,000,000
	To record the distribution of dividends.

Explaining the situation when a 2-for-1 stock split is declared and issued.

On no entry, the par value becomes $5, and the number of shares outstanding increases to 600,000.