Final answer:
Indigo Corporation's 14% stock dividend involves a declaration entry debiting retained earnings and crediting common stock dividend distributable and additional paid-in capital. On distribution, common stock dividend distributable is debited and common stock is credited, reflecting the issuance of new shares.
Step-by-step explanation:
When a company like Indigo Corporation declares a stock dividend, it is distributing additional shares to its current shareholders instead of cash. For a 14% stock dividend on 310,000 shares when the market price is $17, the accounting entries involve a decrease in retained earnings (which represents part of a company's percent of the profits) and an increase in common stock and additional paid-in capital accounts.
Declaration Entry on December 1Retained Earnings ------------- Debited for $731,800 (310,000 shares * 14% * $17 market price)Common Stock Dividend Distributable -- Credited for $434,000 (310,000 shares * 14% * $10 par value)Additional Paid-In Capital ------------- Credited for $297,800 (the difference between retained earnings debit and common stock dividend distributable)Distribution Entry on December 31Common Stock Dividend Distributable -- Debited for $434,000Common Stock -------------------------------- Credited for $434,000 (transferring the distributable portion to the commonstock account at par value)