Garber Corporation had 40,000 shares of $10 par common stock outstanding on January 1, Year 2. On June 1, Year 2, Garber purchased 5,000 shares of its own stock on the open market for $22 per share and held it as treasury stock. On October 1, Year 2, Garber declared and issued a 10% stock dividend. The market value of Garber's stock was $24 per share on October 1, Year 2. Garber's board of directors declared and paid a cash dividend of $57,750 on December 15, Year 2. Required:a) Prepare the journal entry to record the treasury stock purchase.b) Prepare the journal entry to record the stock dividend.c) Prepare the journal entry to record the cash dividend.d) What was the cash dividend per share that was paid on December 15?
What will be an ideal response?
| a) | Treasury stock | 110,000 | ? |
| ? | Cash | ? | 110,000 |
| b) | Retained earnings | 84,000 | ? |
| ? | Common stock | 35,000 | |
| ? | Paid-in capital in excess of par value-common | 49,000 | |
| c) | Dividends | 57,750 | ? |
| ? | Cash | ? | 57,750 |
a)
Increase in Treasury stock and decrease in Cash = 5,000 shares × Cost of $22 per share = $110,000
b)
Shares outstanding on October 1 = 40,000 Shares outstanding on January 1 ? 5,000 Shares of treasury stock purchased on June 1 = 35,000
Shares distributed in stock dividend on October 1 = 35,000 Shares outstanding on October 1 × Stock dividend of 10% = 3,500
Decrease in retained earnings = 3,500 Shares distributed as stock dividend × Market value of $24 per share = $84,000
Increase in Common Stock account = Stock dividend of 3,500 shares × Par value of $10 per share = $35,000
Increase in Paid-in capital in excess of par ? Common = $84,000 ? $35,000 = $49,000
d)
Shares outstanding on December 15 = 35,000 Shares outstanding on October 1 + 3,500 Shares issued in stock dividend on October 1 = 38,500 shares
Cash dividend per share on December 15 = Dividend of $57,750 dividend ÷ 38,500 Shares outstanding on December 15 = $1.50
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