Question

Norris Company has the following capital structure: Common stock, $1 par, 100,000 shares issued and outstanding. On October 1, 2020, the company declared a 5% common stock dividend when the market price of the common stock was $15 per share. The stock dividend will be distributed on October 15, 2020, to stockholders on record on October 10, 2020. Upon declaration of the stock dividend, Norris Company would record:

Answer 1

Answer: Debit to retained earnings of $75000

Step-by-step explanation:

Based on the information given, the stock dividend will be:

= 100,000 shares x 5%

= 100000 × 0.05

= 5,000 shares.

Since the market price is $15 per share, then the retained earnings will be:

= $15 × 5000

= $75000

Stock dividend distributable will be:

= 5,000 x $1

= $5000

Paid in capital in excess of par = $75000 - $5000 = $70000

The journal entry will be:

Debit Retained earnings $75000

Credit Stock dividend distributable $5,000

Credit Paid in capital in excess of par $70000