Reference no: EM132965454
On 1st January 2014, Everest Company's stockholders' equity categoryappeared as follows:
Preferred stock, Rs 80 par value, 8%
1,000 shares issued and outstanding Rs.80,000
Common stock, Rs 12 par value,
10,000 shares issued and outstanding Rs.120,000
Additional paid in capital- Preferred Rs.60,000
Additional paid in capital-Common Rs.195,000
Total contributed capital Rs.4,55,000
Retained earnings Rs.845,000
Total Shareholders' Equity Rs.13,00,000
The preferred stock is cumulative and non-participative. The company did not pay dividend in 2012 and 2013. During 2014, the following 3 of 3 transactions occurred.
a) On March 1, declared a cash dividend of Rs.30,000. Paid the dividend on April 1.
b) On June 1, declared 8% stock dividend on common stock. The current market price of the common stock was Rs 26. The stock was issued on July 1.
c) On December 1, issued a 3-for 1 stock split of common stock, when the stock was selling for Rs 30 per share.
Required:
Problem i. Record the above transactions in journal.
Problem ii. Develop the stockholders' equity category of the December 31, 2014, balance sheet. Assuming the net income for the year was Rs.100,000.
Problem iii. Why would a company issue a stock dividend instead of a cash dividend?
Problem iv. What is the distinction between stock dividends and stock splits? How should stock splits be recorded?