Final answer:
A 5% stock dividend by Siewert Incorporated on its 140 million shares, with a market price of $34, leads to the issuance of 7 million new shares. The declaration of this dividend involves debiting Stock Dividends for the market value and crediting Common Stock Dividend Distributable and Paid-in Capital in Excess of Par. Upon distribution, Common Stock Dividend Distributable is debited and Common Stock is credited, reflecting the new shares.
Step-by-step explanation:
When Siewert Incorporated declares a stock dividend, it is committing to issue additional shares to its current shareholders. This is not a cash payment, like a regular dividend, but rather an increase in the total number of shares owned, which can lead to capital gains for investors. The value of this dividend can be calculated by multiplying the number of shares by the percentage of the stock dividend, and then using the market price per share to figure out the total cost.
In this case, a 5% stock dividend on 140 million shares means 7 million new shares will be issued. On June 13, with a market price of $34 per share, the journal entry to record the declaration is as follows:
- Debit Stock Dividends (7 million shares * $34 market price) = $238 million.
- Credit Common Stock Dividend Distributable (7 million shares * $1 par value) = $7 million.
- Credit Paid-in Capital in Excess of Par - Common Stock (the difference between the two above) = $231 million.
As of July 1, to record the distribution, the following entry is made:
- Debit Common Stock Dividend Distributable = $7 million.
- Credit Common Stock (7 million shares * $1 par value) = $7 million.
This reflects the issuance of the new shares to shareholders and the increase in the common stock account.