On December 31, 2020, Asaad Corporation had the following shareholders? equity accounts:

During 2021, the following transactions occurred:

Feb. 1 Declared a $1 cash dividend to shareholders of record on February 15 and payable on

March 1.

Apr. 1 Announced a 2-for-1 stock split. The market price per share was $36 on the date of the announcement.

Dec. 1 Declared a 5% stock dividend to shareholders of record on December 20, distributable on

January 5. On December 1, the shares? market price was $16 per share; on December 20, it was $18 per share; and on January 5, it was $15 per share.

31 Determined that profit before income tax for the year was $400,000. The company has a 25% income tax rate.

Instructions

a. Journalize the transactions and closing entries for 2021.

b. Create general ledger accounts and enter the beginning balances from the December 31, 2020, partial balance sheet. Post the entries in part (a) to the shareholders? equity accounts. Open additional shareholders? equity accounts as needed.

c. Prepare the shareholders? equity section of the balance sheet at December 31, 2021.

Taking It Further

Stock splits and stock dividends do not change the company?s total assets. Given that, why does the share price change after a stock split or stock dividend?

Transcribed Image Text:

ASAAD CORPORATION Balance Sheet (partial) December 31, 2020 Shareholders' equity Common shares (unlimited number of shares authorized, 75,000 shares issued) Retained earnings Total shareholders' equity $1,700,000 $2,300,000