Stock dividend! Colorado Outfitters dishes out 10% of their shares – 2,700 in all. $47 each on the market, that's a cool $126,900. Retained earnings take a hit, but new shares sprout, boosting paid-in capital by $76,500.
To record a 10% stock dividend for Colorado Outfitters, Inc., we need to follow these steps:
1. Calculate the number of shares to be issued:
Stock dividend percentage = 10%
Number of outstanding shares = 27,000 shares
Number of shares to be issued = 10% * 27,000 shares = 2,700 shares
2. Determine the market value of the shares to be issued:
Market price per share = $47
Total market value of shares to be issued = 2,700 shares * $47/share = $126,900
3. Create journal entries:
a) Stock Dividends Payable:
Debit Stock Dividends Payable $126,900
Credit Retained Earnings $126,900
This entry increases the Stock Dividends Payable account, representing the liability to issue the new shares, and decreases Retained Earnings by the same amount, reflecting the distribution of profits to shareholders.
b) Common Stock:
Debit Common Stock $50,400 (2,700 shares * $18 par value)
Credit Stock Dividends Payable $50,400
This entry records the issuance of the new shares by debiting the Common Stock account and crediting the Stock Dividends Payable account, settling the liability created in the first entry.
c) Additional Paid-in Capital:
Debit Additional Paid-in Capital $76,500 ($126,900 - $50,400)
Credit Retained Earnings $76,500
This entry reflects the difference between the market value of the stock dividend ($126,900) and the par value of the issued shares ($50,400). This difference goes to the Additional Paid-in Capital account, increasing its balance.
Note: These entries assume a small stock dividend, meaning the market price exceeds the par value. If the par value were higher than the market price, the accounting treatment would differ.
Remember: This is a simplified representation, and specific accounting standards and regulations might apply depending on your jurisdiction. For accurate financial reporting, consult with a professional accountant.