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Stock Dividend Journal Entry

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A 35% stock dividend was declared on October 2 by the board of directors of a corporation to shareholders of record on October 20 payable on November 10. The closing market price of the stock on October 2 was $18. The corporation currently has the following items on its Stockholder's Equity section (all dollar amounts):
Common Stock ($2 Stated value) - 2,000,000
Paid in Capital in excess of par - 3,000,000
Retained Earnings - 4,000,000
Total Stockholder's Equity - 9,000,000

Which journal entry would be recorded on the declaration date of a stock dividend?

A.
Retained Earnings 700,000
Paid in Captial in excess of stated value 700,000

B.
Retained Earnings - 700,000
Common Stock Dividends Distributable - 700,000

C.
Retained Earnings - 3,600,000
Common Stock - 3,600,000

D.
Common Stock Dividends Distributable - 700,000
Paid in Captial in excess of stated value - 700,000

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Solution Preview

The entry will be option 'B'.

The company is issuing 35% stock dividend. Which means ...

Solution Summary

The stock dividend journal entries are examined. The paid in capital excess of par are given.

$2.19
See Also This Related BrainMass Solution

Prepare, in proper form, the journal entries required to account for the dividend transactions.

Background (prior problem data):

Sixnut, Incorporated has been authorized to issue 1,000,000 shares of $1 par common stock, and 100,000 shares of 8%, $100 par, cumulative, preferred stock. During the first six months of operation, the following transactions occurred related to the stock.
Jul 1st Sold 200,000 shares of common stock for $15 per share, and 100,000 shares of preferred stock, sold at par.
Jul 1st Issued 100,000 shares of common stock in exchange for the following assets: Land $250,000
Building 750,000
Equipment 300,000
Inventory 200,000

The market value of the stock was $15 per share.

Sep 1st Sold 100,000 shares of common stock for $20 per share.

Oct 31st Repurchased 50,000 shares of common stock for $25 per share.

Sixnut has elected to use the cost method to account for the treasury stock.

Nov 30th Re-sold 20,000 shares of the treasury stock for $35 per share.

Dec 31st Recorded net income for the first six months in the amount of $5,000,000.

------------
Required: Prepare, in proper form, the journal entries required to account for the
dividend transactions shown below:

Mar 31st Declared a $2 per share dividend to the common stockholders of record at
April 15th, payable on April 30th.
 
Mar 31st Declared ½ of the annual preferred stock dividend to the stockholders of
record at April 15th, payable on April 30th.
 
Jun 30th Declared a 2 for 1 stock split.
 
Jul 31st Declared a 10% stock dividend to the common stockholders of record at
August 15th, to be distributed on August 31st. The market value of the
Stock on July 31st was $20 per share.
 
Sep 30th Declared ½ of the annual preferred stock dividend tot the stockholders of
record Oct 15th, payable on Oct 31st.
 

 

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