BRIEF EXERCISE 14-1
(a)
Mar.
(b)
1 Stock Dividends (400,000 × 5% × $5)..................... 100,000
Stock Dividends Distributable ..........................
100,000
31 Stock Dividends Distributable ................................ 100,000
Common Shares ...............................................
100,000
Wei Tse’s percentage ownership would not change as a result of a stock
dividend. Prior to the stock dividend, Wei Tse’s ownership percentage was
0.5% (2,000 ÷ 400,000). After the stock dividend, Wei Tse’s ownership
percentage remains 0.5% (2,100 ÷ 420,000).
BRIEF EXERCISE 14-2
(a)
(b)
(c)
(d)
Share capital
Retained earnings
Total shareholders’ equity
Number of shares
Before
$2,000,000
600,000
$2,600,000
225,000
After
$2,270,000*
330,000*
$2,600,000
247,500
* Number of shares issued: 225,000 × 10% = 22,500 shares
Stock dividend: 22,500 shares × $12 = $270,000
Retained earnings will decrease and share capital will increase by this amount.
BRIEF EXERCISE 14-3
Transaction
(a)
(b)
(c)
(d)
(e)
Declared a cash
dividend
Paid the cash dividend
declared in (a)
Declared a stock
dividend
Distributed the stock
dividend declared in
(c)
Split stock 2-for-1
Assets
Liabilities
Shareholders’
Equity
Number of
Shares
NE
+
–
NE
–
–
NE
NE
NE
NE
NE
NE
NE
NE
NE
+
NE
NE
NE
+
BRIEF EXERCISE 14-4
(a)
Dec.
(b)
Dec.
31
31
Common Shares (8,000 × $6.25*) ..................
Contributed Surplus—
Reacquisition of Common Shares............
Cash ...........................................................
50,000
Common Shares (8,000 × $6.25*) ..................
Retained Earnings ...........................................
Cash ...........................................................
50,000
10,000
*Average share price = $250,000 ÷ 40,000 shares = $6.25
5,000
45,000
60,000
BRIEF EXERCISE 14-5
(a)
(b)
Feb.
Dec.
Average cost per share: $12.60
($50,000 + $265,000) ÷ (10,000 + 15,000)
8
22
Common Shares (1,000 × $12.60) ..................
Contributed Surplus—
Reacquisition of Common Shares............
Cash ...........................................................
12,600
Common Shares (2,000 × $12.60) ..................
Contributed Surplus—
Reacquisition of Common Shares .................
Retained Earnings ...........................................
Cash ...........................................................
25,200
2,600
10,000
2,600
200
28,000
EXERCISE 14-1
Before
Action
After Cash
Dividend
After Stock
Dividend
After Stock
Split
Total assets
$1,875,000
$1,851,000
$1,875,000
$1,875,000
Total liabilities
Common shares
Retained earnings
Total shareholders' equity
Total liabilities and
shareholders’ equity
$ 75,000
1,200,000
600,000
1,800,000
$ 75,000
1,200,000
576,000
1,776,000
$ 75,000
1,242,000*
558,000
1,800,000
$ 75,000
1,200,000
600,000
1,800,000
$1,875,000
$1,851,000
$1,875,000
$1,875,000
60,000
60,000
63,000
120,000
Number of common shares
* $1,200,000 + (60,000 shares × 5% × $14) = $1,242,000
EXERCISE 14-2
1. Dec.
2.
3.
4.
31 Cash Dividends—Preferred
(20,000 × $4 ÷ 4) .................................
Dividend Expense ..............................
20,000
20,000
31 Stock Dividends—Common ....................
Dividends Payable ...................................
Common Stock
Dividend Distributable.....................
Retained Earnings ..............................
12,000
12,000
31 Preferred Shares .......................................
Retained Earnings ..............................
1,400,000
31 Dividends Payable ...................................
Cash Dividends—Preferred ...............
(40,000 × $2 ÷ 4 = $20,000, not $40,000)
20,000
12,000
12,000
1,400,000
Before split: Annual dividend = 20,000 × $4 = $80,000
After split: Annual dividend = 40,000 × $2 = $80,000
20,000
EXERCISE 14-3
(a)
Jan.
6
12
Mar.
July
Nov.
17
18
17
Dec. 30
Cash .......................................................
Common Shares ..............................
(200,000 shares × $1.50)
300,000
Cash .......................................................
Common Shares ..............................
(50,000 shares × $1.75)
87,500
Cash .......................................................
Preferred Shares ..............................
(1,000 shares × $105)
105,000
Cash .......................................................
Common Shares ..............................
2,000,000
Common Shares
(200,000 × $1.91*) ............................
Retained Earnings .................................
Cash (200,000 × $1.95) ....................
Common Shares
(150,000 × $1.91*) ............................
Contributed Surplus—
Reacquisition of Common Shares ..
Cash (150,000 × $1.80) ....................
*Average Cost per Common Share:
Number of Common
Transaction Date
Shares Issued
January 6
200,000
January 12
50,000
July 18
1,000,000
Total
1,250,000
$2,387,500  1,250,000 = $1.91
300,000
87,500
105,000
2,000,000
382,000
8,000
390,000
286,500
16,500
Proceeds of Issue
$ 300,000
87,500
2,000,000
$2,387,500
270,000
EXERCISE 14-3 (Continued)
(b)
There are 900,000 common shares remaining, at an average cost of $1.91**.
**Average Cost per Common Share:
Transaction
Date
January 6
January 12
July 18
Nov. 17
Dec. 30
Total
Number of Common
Shares Issued
Proceeds of Issue
200,000
50,000
1,000,000
(200,000)
(150,000)
900,000
$ 300,000
87,500
2,000,000
(382,000)
(286,500)
$1,719,000
$1,719,000  900,000 = $1.91
EXERCISE 14-7
(a)
FYRE LITE CORPORATION
Statement of Retained Earnings
Year Ended December 31, 2014
Balance, January 1, as previously reported ..........................................
Add:
Correction for understatement of 2013 profit
due to error, net of $21,2501 income tax expense 63,750
Balance, January 1, as adjusted ............................................................
Add:
Profit ............................................................................................
Less:
Excess cost of reacquired shares.........................
Cash dividends ......................................................
2
$85,000 × 25% = $21,250
$750,000 × (1 − 25%) = $562,500
713,750
562,5002
1,276,250
$ 50,000
245,000
Balance, December 31 ...........................................................................
1
$650,000
295,000
$981,250
(b)
Note X: During the year, the corporation completed a 3-for-1 stock split on its
common shares.
On the balance sheet, the number of common shares outstanding will have
tripled in number.
EXERCISE 14-8
Item
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Contributed Capital
Share
Capital
Additional
NE
NE
NE
NE
I
NE
NE
NE
I
NE
NE
NE
NE
NE
NE
NE
D
I
NE
NE
Retained
Earnings
Accumulated Other
Comprehensive Income
Total Shareholders’
Equity
D
NE
NE
NE
D
NE
I
NE
NE
I
NE
NE
NE
NE
NE
NE
NE
I
NE
I
D
NE
I
NE
NE
NE
I
I
D
I
PROBLEM 14-1A
(a)
Cash Dividend
a
b
Stock Dividend
3-for-2 Stock Split
(1)
Assets
$12,000,000 −
$600,000a =
$11,400,000
No effect =
$12,000,000
No effect =
$12,000,000
(2)
Liabilities
No effect =
$4,000,000
No effect =
$4,000,000
No effect =
$4,000,000
(3)
Common shares
No effect =
$2,000,000
$2,000,000 +
$600,000b
= $2,600,000
No effect =
$2,000,000
(4)
Retained
earnings
$6,000,000 −
$600,000
= $5,400,000
$6,000,000 −
$600,000
= $ 5,400,000
No effect =
$6,000,000
(5)
Total
shareholders’
equity
$8,000,000 −
$600,000
= $7,400,000
No effect
($8,000,000 +
$600,000 −
$600,000 =
$8,000,000)
No effect =
$8,000,000
(6)
Number of
shares
No effect =
400,000
20,000 increase
(20,000 + 400,000
= 420,000)
200,000 increase
(400,000 × 3 ÷ 2 =
600,000)
400,000 × $1.50 = $600,000
400,000 × 5% × $30 = $600,000
PROBLEM 14-1A (Continued)
(b)
1.
Cash dividend
Cash dividend 1,000 × $1.50 = $1,500
Fair value of shares 1,000 × $28.501 = $28,500
1
2.
Stock Dividend
Stock dividend 1,000 × 5% = 50 shares
Fair value of shares 1,050 × $28.57142 = $30,000
2
3.
Assumed that fair value of the shares would likely drop by the amount of the cash dividend
($30 − $1.50 = $28.50)
Assumed that fair value of the shares would drop accordingly ($30 ÷ 105% = $28.5714), the
same amount as the stock dividend.
Stock Split
Stock split 1,000 × 3 ÷ 2 = 1,500 shares
Fair value of shares = 1,500 × $203 = $30,000
3
Assumed that fair value of the shares would likely decrease by one-third because of the
stock split ($30 × 2/3 = $20)
In terms of final value, the shareholder would be in the same position having received a cash
dividend, a stock dividend or a stock split. However, a stock dividend or split would allow
the shareholder to control the receipt of the cash and the related tax payment. Since the
shareholder can control when the shares are sold, they can control when the income tax
would have to be paid on any gains. Stock dividends and stock splits also provide the
shareholder with an increased number of shares on which to generate future gains and
dividends. Alternatively, some shareholders may prefer to receive a cash dividend since
they do not have to sell the shares to obtain the cash. As well, there are often brokerage fees
associated with selling shares.
PROBLEM 14-2A
(a)
Date
Jan.
Feb.
July
GENERAL JOURNAL
Account Titles and Explanation
J1
Debit
15 Cash Dividends—Common ...................................
Dividends Payable (90,000 × $1) .....................
90,000
15 Dividends Payable .................................................
Cash ...................................................................
90,000
Credit
90,000
90,000
01 Memo: 3-for-2 stock split increases
the number of shares to 135,000 (90,000 × 3 ÷ 2)
Dec. 015 Common Stock Dividends .....................................
Common Stock Dividends
Distributable (135,000 × 10% × $10) .................
135,000
31 Income Summary ...................................................
Retained Earnings .............................................
[($450,000 × (1 – 30%)]
315,000
31 Retained Earnings ...................................................
Cash Dividends—Common .............................
Common Stock Dividends ...............................
225,000
135,000
315,000
90,000
135,000
PROBLEM 14-2A (Continued)
(b)
Common Shares
Date
Jan.
Explanation
1 Balance
Ref.
Debit
Credit

Balance
1,100,000
Common Stock Dividends Distributable
Date
Dec.
Explanation
15
Ref.
Debit
J1
Credit
135,000
Balance
135,000
Cash Dividends—Common
Date
Jan.
Dec.
Explanation
15
31 Closing entry
Ref.
J1
J1
Debit
Credit
90,000
90,000
Balance
90,000
0
Common Stock Dividends
Date
Dec.
Explanation
15
31 Closing entry
Ref.
J1
J1
Debit
Credit
135,000
135,000
Balance
135,000
0
Retained Earnings
Date
Jan.
Dec.
Explanation
1 Balance
31 Closing entry
31 Closing entry
Ref.

J1
J1
Debit
Credit
315,000
225,000
Balance
540,000
855,000
630,000
PROBLEM 14-2A (Continued)
(c)
LEBLANC CORPORATION
Partial Balance Sheet
December 31, 2014
Shareholders' equity
Share capital
Common shares, no par value, unlimited number
of shares authorized, 135,000 shares issued .........................
Common stock dividend distributable ....................................
Total share capital .....................................................................
Retained earnings ...........................................................................
Total shareholders' equity ...................................................
$1,100,000
135,000
1,235,000
00,630,000
$1,865,000
PROBLEM 14-3A
(a)
(b)
Shares authorized
Shares issued
1,000,000
437,000
Common shares $1,351,330
Contributed Surplus—reacquisition of
Common shares
Retained earnings
$6,750
$719,420
Calculations:
Common
shares
(a)
Bal
1.
2.
3.
$1,500,000
147,000
1,647,000
(30,800)
1,616,200
22,500
Number of
shares
(b)
500,000
35,000
535,000
(10,000)
525,000
5,000
Average
issue
price
(a) ÷ (b)
Cont. surplus —
reacq. of
common shares
Retained
earnings
$3.00
$15,000
$720,000
3.08
15,000
(1)
800
15,800
720,000
3.08
720,000
4.
5.
(1)
(2)
(3)
1,638,700
(55,620)
1,583,080
(231,750)
$1,351,330
530,000
(18,000)
512,000
(75,000)
437,000
3.09
3.09
3.09
15,800
(2) (15,800)
0
(3) 6,750
$ 6,750
720,000
(580)
719,420
_
$719,420
(10,000 × $3.08) − (10,000 × $3) = $30,800 − $30,000 = $800
(18,000 × $3.09) − (18,000 × $4) = $55,620 − $72,000
= $(16,380). A maximum of $15,800 is deducted from contributed surplus; the remainder, $580, is
deducted from retained earnings.
(75,000 × $3.09) – (75,000 × $3) = $231,750 − $225,000
= $6,750