A corporation declares and distributes a 20% stock dividend at a time when there are 10,000 shares outstanding (before the dividend). The common stock has a par value of $1/share and a market value of $20/share. What will be the debit made to retained earnings to record this stock dividend?

Stock dividend is the payment of dividend to stockholder in the form of stock/shares of the company. Stock are issued at the market price and the value of the dividend is transferred from the retained earning to the add-in-capital accounts.

Dividend Value = 10,000 x 20% = 2,000 shares

Value is calculated using market value of the stock

Value of Dividend = 2,000 x $20 = $40,000

Par Value of Stocks = $1 x 2,000 = $2,000

Add-in-capital excess of par common stock = ($20-$1) x 2,000 = $38,000

Journal Entry will be as follow

Dr. Retained Earning $40,000

Cr. Common stock $2,000

Cr. Add-in-Capital excess of par common $38,000

anthougo anthougo · Answer 2 · 2021-11-18T11:28:40+01:00

The debit entry that will be made to the retained earnings to record this stock dividend is $2,000.

Data and Calculations:

Stock dividend declared = 20%

Dividend in dollar value = $2,000 ($10,000 x 20%)

Outstanding number of shares = 10,000

Common stock value = $10,000 (10,000 x $1)

Par value per share = $1

Market value per share = $20

Thus, only $2,000 will be debited to the Retained Earnings account, since the computation of stock dividend does not consider the market value of shares.

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