Part I: 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.
Part II:
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
Problem 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?
Problem 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?
Problem 3. Explain the difference, if any, to a stockholder from receiving new shares distributed under a large stock dividend versus a stock split.