[Rarequeen]

My answers are includes can you tell me if they are correct please or where what I'm doing wrong please


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.

answers for the top

Exercise 13-7
1 a. $330,000
b. $680,000
c. 25,000 shares

to a. $ 165,000
b. $ 330,000
c. 12,000

3. The difference between stock splits and large stock dividends is often blurred. Many companies report stock splits in their financial statements without calling in the original shares by simply changing their par value. This type of “split” is really a large stock dividend and results in additional shares issued to stockholders by capitalizing retained earnings or transferring other contributed capital to Common Stock. This approach avoids administrative costs of splitting the stock. Harley-Davidson recently declared a 2-for-1 stock split executed in the form of a 100% stock dividend.

[santys72]

When a company distibutes stock dividends, you need to have into account the % of dividends that is going to issue. If the stock dividends is 20-25% then you need to use the Fair Value of the stock. If the stock dividend is greater than 25% then you issue the stock dividend at par value.

Your entry would be:
Dr: Retained Earnings $330,000
Cr: Common Stock $330,000 (the company issue 33,000 new common stock at 10 par value)

The retained Earnings Balance after the stock dividend is $0.00
The amount of stockholders equity, after the stock dividend does not change. When you declared the stock dividend, you reduced 100% of retained earnings, but increases your common stock for the same amount, therefore there is no effect in your stockholders equity.
After the stock dividend the company will have the first 25000 shares + 33000 shares (330,000 stock dividend / $10 par value) = 58,000 outstanding shares

If the company implement a split dividend, no J/E entry is required. Split dividends increases the amount of common stock per the specified amount of the split, but the par value of the stock is also reduce. Therefore there is no change on stockholders equity. You will have 50,000 shares outstanding with a par value of $5,00.
Retained Earnings Balance will be the same $330,000.
Stockholders Equity will be the same (as per above) $680,000
Shares outstanding - 50,000

When you distribute stock dividend (large stock dividend), you will actually reduce your retained earnings, and your common stock will increase (remember large stock dividend - par value, small stock dividend 20-25% fair value. In that case you will increase common stock at par value and the difference to APIC "Additional Paid in Capital" for the excess over par value. In stock split, you do not touch your retained earnings, you merely multiply the amount of the split by the current amount of common stock. IN this case because it's a 2X1 split, you multiply by 2 your current number of outstanding shares. Also with the split the par value of the share is reduced, so at the end your stockholders equity does not change. There is no J/E when you accounts for a stock split.