Dynasty Inc. had stockholders\' equity on January 1 as follows: Common Stock, $1

Question

Dynasty Inc. had stockholders' equity on January 1 as follows: Common Stock, $1 par value, 1,000,000 shares authorized, 400,000 shares issued; Paid-in Capital in Excess of Par Value, Common Stock, $800,000; Retained Earnings, $3,600,000. Prepare journal entry to record the following transaction related to a stock dividend:

Mar. 15

The board of directors declared a 1% stock dividend to stockholders on March 15. The stock was trading at $7 per share prior to the dividend. (Hint: Use the liability account “Stock Dividend Distributable” for the par value of the stock dividend on this date as the stock dividend is not payable until a later date).

The board of directors declared a 1% stock dividend to stockholders on March 15. The stock was trading at $7 per share prior to the dividend. (Hint: Use the liability account “Stock Dividend Distributable” for the par value of the stock dividend on this date as the stock dividend is not payable until a later date).

Explanation / Answer

Journal entry on the date of declaration:

Retained earnings a/c (4,000 x $7)

To Stock dividend Distributabe a/c (4,000 x $1)

To Additional paid in capital a/c (4,000 x $6)

(Being stock dividend declared)

$28,000

$4,000

$24,000

Working note:

Number of shares issued as stock dividend = 400,000 outstanding shares x 1% = 4,000 shares.

Retained earnings a/c (4,000 x $7)

To Stock dividend Distributabe a/c (4,000 x $1)

To Additional paid in capital a/c (4,000 x $6)

(Being stock dividend declared)

$28,000

$4,000

$24,000

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