Identifying and Analyzing Financial Statement Effects of Dividends

The stockholders equity of Palepu Company at December 31, 2013, appears below.

Common stock, $10 par value, 200,000 shares authorized;
80,000 shares issued and outstanding	$800,000
Paid-in capital in excess of par value	480,000
Retained earnings	305,000

During 2014, the following transactions occurred:

May 12	Declared and issued a 7% stock dividend; the common stock market value was $18 per share.
Dec. 31	Declared and paid a cash dividend of 75 cents per share.

Required

a. Prepare the journal entries for these transactions.

General Journal
Date	Description	Debit	Credit
5/12	Answer Retained earningsCommon stockAdditional paid-in capitalCash	Answer	Answer
	Common Stock	Answer	Answer
	Answer CashCommon stockRetained earningsAdditional paid-in capital	Answer	Answer
12/31	Answer Common stockCashAdditional paid-in capitalRetained earnings	Answer	Answer
	Answer Common stockCashRetained earningsAdditional paid-in capital	Answer	Answer

b. Post the journal entries from a to the related T-accounts.

Cash (A)
5/12	Answer	Answer
12/31	Answer	Answer

Common Stock (SE)
5/12	Answer	Answer
12/31	Answer	Answer

Retained Earnings (SE)
5/12	Answer	Answer
12/31	Answer	Answer

Additional Paid-in Capital (SE)
5/12	Answer	Answer
12/31	Answer	Answer

c. Using the financial statement effects template, illustrate the effects of these transactions.

Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contrib. Capital	+	Earned Capital
5/12 Declared and paid stock dividend	$ Answer	+	$ Answer	=	$ Answer	+	$56,000	+	$ Answer
	Answer	+	Answer	=	Answer	+	Answer	+	Answer
12/31 Declared and paid cash dividend	Answer	+	Answer	=	Answer	+	Answer	+	Answer

Income Statement
	Revenues	-	Expenses	=	Net Income
	$ Answer	-	$ Answer	=	$ Answer
	Answer	-	Answer	=	Answer
	Answer	-	Answer	=	Answer

d. Prepare a retained earnings reconciliation for 2014 assuming that the company reports 2014 net income of $283,000. Hint: Do not use negative signs with answers below.

PALEPU COMPANY Statement of Retained Earnings For the Year Ended December 31, 2014
Retained earnings, December 31, 2013		$ Answer
Add:
Answer Stock dividends declaredNet incomeCash dividends declared		Answer
		Answer
Less:
Cash dividends declared	$ Answer
Answer Stock dividends declaredCash dividends declaredNet income	Answer	Answer
Retained earnings, December 31, 2014		$ Answer