On December 31, 2013, Asaad Corporation had the following shareholders' equity accounts: ASAAD CORPORATION Balance Sheet (partial)

Question:

On December 31, 2013, Asaad Corporation had the following shareholders' equity accounts:

ASAAD CORPORATION

Balance Sheet (partial)

December 31, 2013

Shareholders' equity

Common shares (unlimited number of shares authorized,

75,000 shares issued)..........................................$1,700,000

Retained earnings..................................................600,000

Total shareholders' equity....................................$2,300,000

During the year, 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. Th e company has a 25% income tax rate.

Instructions

(a) Journalize the transactions and closing entries.

(b) Enter the beginning balances and post the entries in (a) to the shareholders' equity accounts.

Taking It Further

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

Balance Sheet
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