Question

Mustang Corporation had 100,000 shares of $2 par value common stock outstanding. On December 31, 2015, the company's board of directors declares a 20 percent stock dividend. This stock dividend will be distributed on January 20, 2016 to the stockholders of record on January 15, 2016. The market price of the company's stock is $10 per share on December 31, 2015. Complete the necessary journal entry to record the distribution of the stock dividend by selecting the account names and dollar amounts from the drop-down menus.

Answer 1

A stock dividend does not involve cash. By stock dividend even though the total stockholder equity remains the same, the stock dividend require to transfer the journal entry to transfer the amount from the retained earnings section of the balance sheet to the paid-up capital section of the balance sheet.

Step-by-step explanation:

Please see attachment .

Answer 2

The journal entry will be as follow:

Dec 31th

Retained Earnings 200,000 debit

Stock Dividends Payable 200,000 credit

to record declared stock dividends

Jan 20th

Stock Dividends payable 200,000 debit

Common Stock 40,000 credit

Additional paid-in 160,000 credit

Step-by-step explanation:

The company will issue 20% stock

100,000 shares x 20% = 20,000 shares

The company cost for this 20,000 will be the market value

20,000 shares x $10 = 200,000

This will be compare with the face value of the shares to calculate the adidtional paid-in:

20,000 sahres x $2 face value = 40,000 common stock

200,000 market value - 40,000 face value = 160,000 additional paid-in

The journal entry will be as follow:

Dec 31th

We declare the dividends against retained earnings, from there we will take the funds to pay the dividends

Jan 20th

The dividends will be paid with common stock so we write-off the dividdends payable again the issued stock and their aditioanl paid-in.