Question

Risingstar Corporation currently has shares outstanding of par value common stock. The stock was originally issued for per share. On March​ 15, the board of directors declares a ​% stock dividend when the stock is selling for per share. Which of the following is the correct journal entry to record this​ transaction? (Do not round intermediate​ calculations.)

a. debit Paid-In Capital in Excess of Par-Common $368,940 and credit Retained Earnings $368,940
b. debit Stock Dividends $368,940, credit Common Stock Dividend Distributable $50,310 and credit Paid-In Capital in Excess of Par—Common $318,630
c. debit Stock Dividends $368,940 and credit Common Stock Dividend Distributable $368,940
d. debit Common Stock Dividend Distributable $50,310, debit Paid-In Capital in Excess of Par—Common for $318,630 and credit Retained Earnings $368,940

Answer 1

Answer:

b. debit Stock Dividends $368,940, credit Common Stock Dividend Distributable $50,310 and credit Paid-In Capital in Excess of Par—Common $318,630

Explanation:

the numbers are missing in the question:

• 129,000 shares at $3 par value sold at $14
• 13% stock dividend when price is $22 per stock

since this is a small stock dividend, we must record the transaction using the market value:

total stock dividend = 129,000 x 13% = 16,770 stocks

total transaction = 16,770 x $22 = 368,940

Dr Stock dividends 368,940

    Cr Common stock dividends distributable 50,310

    Cr Additional paid in capital: common stock 318,630

Common stock dividends distributable = 16,770 x $3 = $50,310

additional paid in capital = $368,940 - $50,310 = $318,630