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Prepare Equity Journal Entries

A:

Prepare journal entries to record the following four separate issuances of stock:

1. Two thousand shares of no-par common stock are issued to the corporation's promoters in exchange for their efforts, estimated to be worth $30,000. The stock has no stated value.

2. Two thousand shares of no-par common stock are issued to the corporation's promoters in exchange for their efforts, estimated to be worth $30,000. The stock has a $1 per share stated value.

3. Four thousand shares of $10 par value common stock are issued for $70,000 cash.

4. One thousand shares of $100 par value preferred stock are issued for $120,000 cash.

B:

On June 30, 2005, Scizzory Corporation's common stock is priced at $31 per share before any stock dividend or split, and the stockholders' equity section of its balance sheet appears as follows:

Common stock?$10 par value, 60,000 shares
authorized, 25,000 shares issued and outstanding . . . . . . . . . . . . $250,000
Contributed capital in excess of par value, common stock . . . . . . . 100,000
Total contributed capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $680,000

1. Assume that the company declares and immediately distributes a 100% stock dividend. This event is recorded by capitalizing retained earnings equal to the stock's par value. Answer these questions about stockholders' equity as it exists after issuing the new shares:
a. What is the retained earnings balance?
b. What is the amount of total stockholders' equity?
c. How many shares are outstanding?

2. Assume that the company implements a 2-for-1 stock split instead of the stock dividend in part 1. Answer these questions about stockholders' equity as it exists after issuing the new shares:
a. What is the retained earnings balance?
b. What is the amount of total stockholders' equity?
c. How many shares are outstanding?

3. Explain the difference, if any, to a stockholder from receiving new shares distributed under a large stock dividend versus a stock split.

Solution Summary

Guidance is provided in this solution to help you to be confident with these equity transactions and balances.

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