Problem 18-5
Listed below are the transactions that affected the shareholders’ equity of
Branch-Rickie Corporation during the period 2013-2015. At
December 31, 2012, the corporation’s accounts included:
Common stock ($105 million shares at $1 par) $105,000,000
Paid-in Capital-excess of par
630,000,000
Retained earnings
970,000,000
Part 1: Prepare the journal entries that Branch-Rickie recorded during
the three-year period for these transactions.
a. November 1, 2013, the board of directors declared a cash dividend of
$0.80 per share on its common shares, payable to shareholders of
record November 15, to be paid December 1.
11/1
Retained earnings (105,000,000 x $0.80) 84,000,000
Dividend payable
84,000,000
11/15 No entry
12/1 Dividend payable
84,000,000
Cash
84,000,000
©Dr. Chula King
All Rights Reserved
Problem 18-5 (continued)
b. On March 1, 2014, the board of directors declared a property dividend
consisting of corporate bonds of Warner Corporation that BranchRickie was holding as an investment. The bonds had a fair value of
$1.6 million, but were purchased two years previously for $1.3
million. Because they were intended to be held to maturity, the bonds
had not been previously written up. The property dividend was
payable to shareholders of record March 13, to be distributed April 5
3/1
Investment in Warner Bonds ((1.6 – 1.3)) 300,000
,
Gain on appreciation of investments
300,000
Retained earnings
1,600,000
Property dividend payable
1,600,000
3/13 No entry
4/5
Property dividend payable
1,600,000
Investment in Warner Bonds
1,600,000
©Dr. Chula King
All Rights Reserved
Problem 18-5 (continued)
c. On July 12, 2014, the corporation declared and distributed a 5%
common stock dividend (when the market value of the common stock
was $21 per share). Cash was paid in lieu of fractional shares
representing 250,000 equivalent whole shares.
The number of shares represented by the stock dividend is 5,250,000 (5%
x 105 million). If cash is paid in lieu of fractional shares representing
250,000 equivalent shares, then 5,000,000 shares will be distributed
((5,250,000
, ,
– 250,000)
, )
Retained earnings (5,250,000 x $21)
110,250,000
Common stock (5,000,000 x $1)
5,000,000
Paid-in capital-excess of par (5,000,000 x $20)
100,000,000
Cash (250,000 x $21)
5,250,000
©Dr. Chula King
All Rights Reserved
Problem 18-5 (continued)
d. On November 1, 2014, the board of directors declared a cash dividend
of $0.80 per share on its common shares, payable to shareholders of
record November 15, to be paid December 1.
On November 1, 110,000,000 shares of common stock are outstanding
(105,000,000 + 5,000,000). Therefore the amount of the dividend to
be paid is $88,000,000 ($0.80 x 110,000,000)
11/1
Retained earnings
88,000,000
Dividend payable
88 000 000
88,000,000
11/15 No entry
12/1 Dividend payable
88,000,000
Cash
88,000,000
©Dr. Chula King
All Rights Reserved
Problem 18-5 (continued)
e. On January 15, 2015, the board of directors declared and distributed a
3 for 1 stock split effected in the form of a 50% stock dividend when
the market value of the common stock was $22 per share.
Small stock dividends (<25%) are recorded based on the fair market
value of the stock at the date of declaration. Large stock dividends
(≥25%) are recorded based on the stock’s par value. A stock split
effected in the form of a stock dividend, may be recorded by a debit to
retained earnings,
g , or a debit to ppaid-in capital
p
in excess of par.
p
In this case, the number of shares involved in the stock dividend are
55,000,000 (50% x 110,000,000)
Retained earnings (55,000,000 x $1)
55,000,000
Common stock (55,000,000 x $1)
55,000,000
OR
Paid-in capital-excess of par (55,000,000 x $1) 55,000,000
Common stock (55,000,000 x $1)
55,000,000
©Dr. Chula King
All Rights Reserved
Problem 18-5 (continued)
f. On November 1, 2015, the board of directors declared a cash dividend
of $0.65 per share on its common shares payable to shareholders of
record November 15, to be paid December 1.
On November 1, the corporation had 165,000,000 shares outstanding
(105,000,000 + 5,000,000 + 55,000,000). The amount of the dividend
is $107,250,000 ($0.65 x 165,000,000)
11/1
Retained earnings
107,250,000
Dividend payable
107 250 000
107,250,000
11/15 No entry
12/1 Dividend payable
107,250,000
Cash
107,250,000
©Dr. Chula King
All Rights Reserved
Problem 18-5 (continued)
Part 2: Prepare the comparative statements of shareholders’ equity for
Branch-Rickie for the three-year period ($ in 000s). Net income was
$330 million, $395 million, and $455 million in 2013, 2014 and 2015
respectively.
Branch-Rickie Corporation
Statement of Shareholders’ Equity
For the Years Ended December 31, 2012, 2014 and 2015 ($ in 000s)
January 1, 2013
Net income
Cash dividends
December 31, 2013
Property dividend
Common stock dividend
Net income
Cash dividends
December 31, 2014
3-for-2 split effected in the form of stock
dividend
Net income
Cash dividends
December 31, 2015
©Dr. Chula King
All Rights Reserved
Common
Additional
Stock
Paid-in Capital
$105,000
$630,000
$105,000
$630,000
5,000
100,000
$110,000
$730,000
55,000
(55,000)
$165,000
$675,000
Retained
Earnings
$970,000
330,000
(84,000)
$1,216,000
(1,600)
(110,250)
395,000
(88,000)
$1,411,150
Total
Shareholders’
Equity
$1,705,000
330,000
(84,000)
$1,951,000
(1,600)
(5,250)
395,000
(88,000)
$2,251,150
455,000
(107,250)
$1,758,900
455,000
(107,250)
$2,598,900