Landess Corporation currently has 120,000 shares outstanding of $1 par value common stock.The stock was originally issued for $12 per share.On March 15,the board of directors declares a 10% stock dividend when the stock is selling for $16 per share.Which of the following is the correct journal entry to record this transaction?

Question

Quizplus · Accepted Answer

When a 10% stock dividend is declared, the total number of shares outstanding will increase by 10%, or 12,000 shares (120,000 * 0.10 = 12,000). The par value of the common stock will also increase by the same percentage, from $120,000 to $132,000 ($120,000 * 1.10 = $132,000).

The journal entry to record this transaction would be:

Debit Common Stock Dividend Distributable for $12,000 (12,000 shares * $1 par value) 
Credit Retained Earnings for $192,000 (12,000 shares * $16 market value per share) 
Credit Paid-In Capital in Excess of Par-Common for $180,000 ($192,000 total credit - $12,000 par value credit)

Therefore, the correct answer is C.

Landess Corporation Currently Has 120,000 Shares Outstanding of $1 Par