Gateway Corporation has outstanding 200,000 common shares that were issued at $10 per share. The balances at January 1, 2023, were $21 million in its Retained Earnings account; $4.3 million in its Contributed Surplus account; and $1.1 million in its Accumulated Other Comprehensive Income account. During 2023, Gateway’s net income was $3,200,000 and comprehensive income was $3,350,000. A cash dividend of $0.70 per share was declared and paid on June 30, 2023, and a 5% stock dividend was declared at the fair value of the shares and distributed to shareholders of record at the close of business on December 31, 2023. You have been asked to give advice on how to properly account for the stock dividend. The existing company shares are traded on a national stock exchange. The shares’ market price per share has been as follows:

Instructions

a. Prepare a journal entry to record the cash dividend.

b. Prepare a journal entry to record the stock dividend.

c. Prepare Gateway’s shareholders’ equity section (of the SFP) for the year 2023 based on the information given. Prepare a schedule outlining the activity in the Retained Earnings account for the year. Write a note to the financial statements that states the accounting basis for the stock dividend.

d. Prepare a statement of changes in shareholders’ equity for 2023.

Transcribed Image Text:

Oct. 31, 2023 Nov. 30, 2023 Dec. 31, 2023 Average price over the two-month period $31 33 38 35