Question

Exercise 10-72 Stock Dividends and Stock Splits The balance sheet of Castle Corporation includes the following stockholders' equity section: Common stock, $2 par, 80,000 shares authorized, $120,000 60,000 shares issued and outstanding Additional paid-in capital-common stock 371,800 Total capital stock $491,800 Retained earnings 173,000 Total equity $664,800 Required: 1. Assume that Castle issued 60,000 shares for cash at the inception of the corporation and that no new shares have been issued since. Determine how much cash was received for the shares issued at inception 2. Assume that Castle issued 30,000 shares for cash at the inception of the corporation and subsequently declared a 2-for-1 stock split. Determine how much cash was received for the shares issued at inception. 3. Assume that Castle issued 57,000 shares for cash at the inception of the corporation and that the remaining 3,000 shares were issued as the result of stock dividends when the stock was selling for $53 per share. Determine how much cash was received for the shares issued at inception. Check My Work 3 more Check My Work uses remaining, Previous Next >

Answer 1

Please find the attached image fir detailed answer,

Please comment for any explanation,

Explanation-

For Case I-

The given additional paid in capital is result of receiving cash in excess of par for the share issued.Since no information about any other issue like bonus,stock dividend is given,hence it is considered that the given issued capital and additional paid in capital belongs to the original of comman stock.

For Case II-

In the event of stock split,only amount which is equal to ratio of stock split shall be charged from retained earning.Cash is not received from stock split and stock split is not subject to additional paid in capital.

For Case III-

The company has issued 57,000 shares at premium which has to be determined from the information given in the question.

Since the stock dividend has been issued after the issue of comman stock.

Stock dividend is of 2 types, first is where the stock dividend is for more than 20% of existing comman stock and another is for upto 20% of exisiting comman stock.

The given stock isssue is part of 2nd one,Here the comman stock shall be credited with the par value only,and any amount in excess of par and upto the value of market price shall be credited to additional paid in capital.

This mean,we will be calculating the additional paid in capital from the stock issue and then additonal paid in capital for the comman issue shall be calculated based on balancing figure.

Please comment for any additional explanation.

Thanks,

The Journal Entry would have been passed Cash alc Dr. $491,800 ( $ 2 x 60 ron shares common Stock 08. $120,000 Additional paid in caplted Cr. $371,800 Hence the total received will be $ 491,800 Cash 27 Inception Journal Entry. Dr. $431800 ( 30.000 Share x $2) Common Stock Cr. $60.000 Addl faid in Capital Co. 371,800 Journal entre for spåt stock or Bonus Shop Retained Earning by $60.000 or $60,000 30,000 share +$2) common stock Hence total cash received will be $ 431,800 3 Journal Entry at inception colll be- ( 57.000 Sharo x 2) Site [341 880 - 1538001 Cash Do. $ 326.000 comman stock cr $ 114.000 Additional paid up capital cri $212000 Retained earning Journal Entory for further issuing stock dividendi- Dr. $ 189,800 (3000 x $2) Common Stock Cry $ 80oo 3000 x $53-2) Additional Paid in Cop Cri 159.800 Hence the Cash received t will be $326.000