Question

Mustang Corporation had 100,000 shares of $2 par value common stock outstanding. On December 31, 2015, the company's board of directors declares a 20 percent stock dividend. This stock dividend will be distributed on January 20, 2016 to the stockholders of record on January 15, 2016. The market price of the company's stock is $10 per share on December 31, 2015. Required:Complete the necessary journal entry to record the declaration of the stock dividend by selecting the account names and dollar amounts.

Answer 1

December 31, 2015

DR Retained Earnings $40,000

CR Common Stock Dividend Distributable $40,000

(To record declaration of stock dividend)

Working

Common Stock Dividend Distributable

= No. of shares * Par value * % stock dividend

= 100,000 * 2 * 20%

= $40,000