Question

Mustang Corporation had 100,000 shares of $2 par value common stock outstanding. On December 31, 2018, the company's board of directors declares a 50 percent stock dividend. This stock dividend will be distributed on January 20, 2019 to the stockholders of record on January 15, 2019. The market price of the company's stock is $10 per share on December 31, 2018.

Prepare the journal entry.

Answer 1

Dr Retained Earnings 500,000

Cr Com. Stock Dividend Distributable 100,000

Cr Add’l Paid – in Capital, Com. Stock 400,,000

Step-by-step explanation:

Preparation of the journal entry

Dec. 31

Dr Retained Earnings 500,000

[(100,000 x (50/100)* 10 market price]

Cr Com. Stock Dividend Distributable 100,000

[(100,000 x (50/100)*2 par value ]

Cr Add’l Paid – in Capital, Com. Stock 400,,000

(500,000 – 100,000 )