Question

g A corporation had 70,000 shares of $7 par value common stock outstanding. The board of directors declared and issued a 50% stock dividend. The market value of the stock was $27 per share. What is the journal entry to record this stock dividend

Answer 1

Journal Entry

Dr. Retained earnings ___________________ $945,000

Cr. Common Stock _____________________ $245,000

Cr. Paid in capital excess of par common stock $700,000

Step-by-step explanation:

Stock dividend is the distribution of earnings for the period among the equity stockholders in the form of common stocks.

The Numbers of stocks issued can be calculated as follow

Numbers of stocks = Common stock outstanding x Stock dividend rate

Placing values in the formula

Numbers of stocks = 70,000 x 50% = 35,000

Now calculate the stock dividend value

Stock divdned = Numbers of stocks issued under stock dividend x Market value of stock = 35,000 x $27 = $945,000

The value upto the par is recorded in the common stock account and excess will be recorded in paid in capital excess of par common stock account.

Common Stock = 35,000 x $7 = $245,000

Paid in capital excess of par common stock = 35,000 x ( $27 - $7 ) = $700,000