The stockholders equity of the sadler company is as shown: Common stock, $10 par

Question

The stockholders equity of the sadler company is as shown:
Common stock, $10 par $250,000
Additional paid-in capital on common stock 150,000
Retained earnings 200,000
$600,000

The company is considering the declaration and issuance of a stock dividend at a time when the market price is $30 per share:

Required
1. Assuming the board of directors recommends a 6% stock dividend, prepare:
a. The journal entry at the date of declaration
b. The journal entry at the date of issuance
c. The stock holders equity after the issuance
2. Assuming, instead, that a 40% stock dividend is recommended, repeat (a), (b), and (c) of Requirement

Explanation / Answer

The 6% dividend is a small stock dividend (25% or less). The 30% is a large stock dividend (more than 25%). 1. number of shares in dividend = (250,000/10)*0.06 = 1500 For a small stock dividend, the amount capitalized is equal to the market value of the distributed shares. 1500*30 = 45,000 a. Debit retained earnings 45,000 Credit Common stock dividend distributable 15,000 credit paid in capital in excess of par value, common stock 30,000 b. Debit common stock dividend distributable 15,000 Credit common stock 15,000 c. Common stock, $10 par $265,000 Additional paid-in capital on common stock 180,000 Retained earnings 155,000 $600,000 2. number of shares in dividend = (250,000/10)*.40 = 10,000 For a large stock dividend, the amount capitalized is equal to the par value of the distributed shares. 10,000*10 = 100,000 a. Debit retained earnings 100,000 Credit Common stock dividend distributable 100,000 b. Debit common stock dividend distributable 100,000 Credit common stock 100,000 c. Common stock, $10 par $350,000 Additional paid-in capital on common stock 150,000 Retained earnings 100,000 $600,000

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