Explain why a company might issue a stock dividend

Assignment Help Accounting Basics

Reference no: EM131780004

Question: Entity A is authorized 10 million common shares and has no treasury stock. The stockholders' equity section of its balance sheet consists of common stock ($5 par) $5,000,000 and retained earnings $30,000,000. On September 15, 2018, Entity A's board of directors declared a 10% stock dividend on common shares. The shares are to be distributed on October 10, 2018, to shareholders of record on October 1, 2018. The market price per share on the date of declaration (Sept. 15) was $24 while the market price on the date of distribution (Oct. 10) was $22.

Entity A uses an account called Common Stock Dividends Distributable (Issuable) where appropriate.

A. Prepare any necessary journal entries to record the above transactions.

B. Prepare two partial balance sheets (stockholders' equity section) including the number of authorized, issued, and outstanding shares, one before (9/14) and one after (10/11) the stock dividend.

Entity A

Partial Balance Sheet

At September 14, 2018

Entity A

Partial Balance Sheet

At October 11, 2018

C. Does it make sense to value the additional shares at a market value prior to the declaration of the stock dividend? What would you expect to happen to the share price after the stock dividend?

D. Explain why a company might issue a stock dividend? Are stock dividends taxable? Do they consume cash? Do they increase or decrease total stockholders' equity? Answer each question.

Reference no: EM131780004

Questions Cloud

Prepare the appropriate journal entry for each of given item : Prepare the appropriate journal entry for each of the items above. You can assume that all transactions with employees, customers, and suppliers were conducted.

Determining the type of bacteria : Dr. James isolated Staphylococcus aureus, a type of bacteria, from the leg wound of a ten year old boy. He suspected these bacteria would grow better

What is the EMV of applying for a grant : It hurts when halftime music is provided by the band of the other team at a home game. What is the EMV of applying for a grant

Compute the equivalent units for materials costs : Compute the equivalent units for materials costs and for conversion costs using the weighted-average method

Explain why a company might issue a stock dividend : Entity A is authorized 10 million common shares and has no treasury stock. The stockholders' equity section of its balance sheet consists of common stock.

Discuss about the ban on prayer in the school system : Discuss one of the following topics in relation to the concepts covered in this course: •The act of flag burning •Protesting etc.

How much interest did the company show for year end december : How much interest did the company show for the year end December 31, 2016? What was the carrying amount of the bonds on December 31, 2016?

The main idea of the article and reasons for your choice : Locate an article on the Internet that addresses a current budgeting issue for an area of criminal justice administration in your state (Maryland).

Determining the equivalent-unit calculations : Equivalent-unit calculations are necessary to allocate manufacturing costs between: Units completed and ending work in process.

User Account

All Pages