Question

Hancock Company has 900,000 shares authorized and 350,000 shares issued and outstanding of its $2 par value common stock. The stock is currently selling for $20 per share. If Hancock Company declared and issued a 5% stock dividend, what journal entry would the company make?

Answer 1

Debit, retained earning for $35000

Credit, common stock for $35000

Step-by-step explanation:

The journal entry will include debits and credits of the retained earnings and the common stock as well.

The retained earning can be derived by

issued shares = 350,000

share par value = $2

issued stock dividend = 5%

Retained earning = 5 x ($2 x 350,000)

100

= 0.05 x $700,000

= $35,000

Also, common stock equals $35,000.

These values are entered as Debit and Credit respectively.

Cheers