Question

Large Stock Dividend and Forward Stock Split Low Corporation has 50,000 shares of $40 par value common stock outstanding and retained earnings of $1,500,000. The company declares a 100 percent stock dividend. The market price at the declaration date is $40 per share. a. Prepare the journal entries for (1) the declaration of the dividend and (2) the issuance of the dividend.

Answer 1

Part 1

Debit : Dividends $50,000

Credit : Shareholders for dividends $50,000

Part 2

Debit : Shareholders for dividends $50,000

Credit : Cash $50,000

Step-by-step explanation:

When dividends are declared and not paid, raise a Liability - Shareholders for Dividends to depict the Company`s Present obligation to its shareholders.

When dividends are issued, derecognize the liability - Shareholders for Dividends and recognize a Cash outflow to depict the outflow of cash resources as a result of the distribution.

Dividends Calculation :

Dividends = 50,000 shares x 100% = $50,000