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Garber Corporation had 40,000 shares of $10 par common stock outstanding on January 1, 2016. On June 1, 2016 Garber purchased 5,000 shares of its own stock on the open market for $22 per share held it as treasury stock. On October 1, 2016 Garber declared and issued a 10% stock dividend. The market value of Garber’s stock was $24 per share or October 1. Garber’s board of directors declared and paid a cash dividend of $57, 750 on December 15, 2016. a) Prepare the journal entry for the treasury stock purchase. b) Prepare the journal entry for the stock dividend. c) Prepare the journal entry for the cash dividend.
Expert Answer
| a) | JOURNAL ENTRY FOR PURCHASE OF TREASURY STOCK | |||||||||
| Date | Account | Debit | Credit | |||||||
| January 1,2016 | Treasury Stock | $110,000 | (5000*$22) | |||||||
| Cash | $110,000 | |||||||||
| b) | JOURNAL ENTRY FOR STOCK DIVIDEND | |||||||||
| Date | Account | Debit | Credit | |||||||
| October 1,2016 | Retained earning | $ 84,000 | ($24* 10%of outstanding shares=$24*0.1*(40000-5000) | |||||||
| Common Stock($10 par) | $ 35,000 | ($10*0.1*35000) | ||||||||
| Additional paid in capital | $ 49,000 | |||||||||
| Stock dividend is basically distribution of retained earning to the shareholders.It is also called bonus shares | ||||||||||
| c) | JOURNAL ENTRY FOR CASH DIVIDEND | |||||||||
| Date | Account | Debit | Credit | |||||||
| December 15,2016 | Retained earning | $57,750 | ||||||||
| Cash | $57,750 | |||||||||
