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On January 1, BearBack Corporation had 300,000 common shares issued.On April 10, the company declared a 10% stock dividend to be distributed on April 30.The market value of the shares was $7 on April 10 and $10 on April 30.
-The entry to record the transaction of April 30 would include a
A)credit to Cash for $210,000.
B)debit to Stock Dividends Distributable for $210,000.
C)credit to Retained Earnings for $300,000.
D)debit to Dividends Declared for $210,000.

Question

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On January 1, BearBack Corporation had 300,000 common shares issued.On April 10, the company declared a 10% stock dividend to be distributed on April 30.The market value of the shares was $7 on April 10 and $10 on April 30.
-The entry to record the transaction of April 30 would include a
A)credit to Cash for $210,000.
B)debit to Stock Dividends Distributable for $210,000.
C)credit to Retained Earnings for $300,000.
D)debit to Dividends Declared for $210,000.

Quizplus · Accepted Answer

The correct entry for a stock dividend involves moving the value of the dividend from Retained Earnings to Paid-in Capital. Since it's a stock dividend, not a cash dividend, there's no cash account involved. The value of the stock dividend is based on the market value at the declaration date, which is $7. However, for a 10% stock dividend on 300,000 shares, the calculation should actually be based on the number of shares distributed (10% of 300,000 = 30,000 shares) multiplied by the par value of the shares, not the market value. The provided choices seem to reflect a misunderstanding of how stock dividends are valued and recorded. The correct process involves a debit to Retained Earnings and a credit to Stock Dividends Distributable (a component of equity, not an expense), but the values given in the options do not align with standard accounting practices for stock dividends. Without the par value of the shares, the exact monetary amount for the transaction cannot be determined from the information given. Therefore, based on the options provided and typical accounting for a stock dividend, option B is selected because it involves a credit to an equity account related to the issuance of the dividend, but please note the explanation above regarding the valuation issue.

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