Rick Co. had 30 million shares of $6 par-per-hare common stock outstanding at Ja

Question

Rick Co. had 30 million shares of $6 par-per-hare common stock outstanding at January 1, 2018. In October 2018, Rick Co.'s Board of Directors declared and immediately distributed a 10% common stock dividend when the market value of its common stock was $60 per share. In recording this transaction, Rick would: Select one: A. Credit paid-in capital-excess of par for $180 million. B. Credit common stock for $18 million. C. Debit retained earnings for $18 million. D. None of these answer choices are correct

Explanation / Answer

No. of shares issued for stock dividend = Existing no. of shares x % of stock dividend = 30 Million x 10% = 3 Million Stock dividend = No. of shares issued as stock dividend x market value per share = 3 Million x $ 60 = $        180 Million Less:Par Value of common stock issued as dividend = 3 Million x $ 6 = $          18 Million Paid up capital in excess of par $        162 Million Cash is not received as a issuance of stock dividend. So, Retained earning will be debited by $ 180 Million and Par Value of common stock will be credited by $ 18 Million and balance $ 162 millio is credited to paid up capital-in excess of Par. Thus, B. Credit common stock for $ 18 million.

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