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The stockholders’ equity of the Sadler Company is as shown below.
Common Stock, $10 par $250,000
Additional paid-in capital on common stock $150,000
Retained Earnings $200,000
Total $600,000
The company is considering the declaration and issuance of a stock dividend when the market price is $30 per share.
A. Assuming the board of directors recommends a 6% stock dividend, prepare the journal entries at the declaration date and at the date of issuance.
B. Assuming, instead, that a 40% stock dividend is recommended prepare the journal entries at the declaration date and at the date of issuance.
Expert Answer
A. Number of common stock = 250,000÷10 = 25,000 stock
Stock dividend = 6% of Number of common stock = 6% of 25,000 = 1,500 stock
| Date | Account Titles | Debit | Credit |
| Retained Earnings (1,500×30) | 45,000 | ||
| Stock dividends distributable | 45,000 | ||
| (Stock dividend of 6% declared) | |||
| Stock dividends distributable | 45,000 | ||
| Common stock (1,500×10) | 15,000 | ||
| Additional paid in capital (1,500×20) | 30,000 | ||
| (Issuance of stock dividends) | |||
Market value of common stock will be taken into consideration when stock dividends issued is less than 20-25% of common stock outstanding.
B. Stock dividends = 40% of Number of common stock = 40% of 25,000 = 2,500 stock
| Date | Account Titles | Debit | Credit |
| Retained Earnings (10,000×10) | 100,000 | ||
| Stock dividends distributable | 100,000 | ||
| (Stock dividend of 40% declared) | |||
| Stock dividends distributable | 100,000 | ||
| Common stock | 100,000 | ||
| (Stock dividends issued) | |||
When stock dividend is more than 20-25% of outstanding common stock, then par value is taken into consideration.
