Ronald Cummings purchased 800 shares of Barnum Corp.'s common stock for $15 per share.Barnum Corp.'s shares have a par value of $2.If Barnum Corp.declared and issued a two-for-one stock split,and later declared and paid on the same day a cash dividend of $1.00 per share,what journal entry would Ronald Cummings make in order to record the cash dividend from Barnum Corp.?

Question

Quizplus · Accepted Answer

After the stock split, Ronald Cummings would have 1600 shares, but the value per share would be reduced to $7.50 (half of the original $15 per share). Then, when Barnum Corp. declares a cash dividend of $1.00 per share, Ronald would receive a total of $1,600 in dividends (since he now owns 1600 shares).

The journal entry to record the receipt of the cash dividend would be:

$\begin{array}{lccc}
\text {  Cash } & 1,600\
\quad \text { Dividend Income } & &1,600 & \
\
\end{array}$

There is no need to record any gain or loss from the stock split itself, as it simply increases the number of shares outstanding and reduces the value per share proportionally.

Ronald Cummings Purchased 800 Shares of Barnum Corp Cash 800 Dividend Income 800\begin{array}{llc}\text { Cash } & 800 & \\\quad \text { Dividend Income } & & 800 \\\\\end{array} Cash Dividend Income ​800​800​

Ronald Cummings Purchased 800 Shares of Barnum Corp $\begin{array}{llc}\text { Cash } & 800 & \\\quad \text { Dividend Income } & & 800 \\\\\end{array}$