Question

On January 1, Ripken Corporation had 40,000 shares of $10 par value common stock outstanding. On March 17 the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The entry to record the transaction of March 17 would include aa. debit to Stock Dividends for $52,000.b. credit to Cash for $52,000.c. credit to Common Stock Dividends Distributable for $52,000.d. credit to Common Stock Dividends Distributable for $12,000.

Answer 1

a. debit to Stock Dividends for $52,000

Step-by-step explanation:

The journal entry for March 17 is shown below:

Stock Dividends Dr $52,000

To Common Stock Distributable $40,000

To Paid-in Capital in Excess of Par Value, Common $12,000

(Being excess amount is transferred to the paid in capital)

The computation of dividend which is directed to the shareholders is shown below:

= Number of shares × rate of dividend × par value of a share

= 40,000 shares × 10% × $10

= $40,000

The excess amount

= Number of shares × rate of dividend × (Market value of a share - par value of the share)

= 40,000 shares × 10% × ($13 - $10)

= $12,000

And, the total amount transferred to the Stock Dividends account which equals to

= $40,000 + $12,000

= $52,000