A corporation had 50,000 shares of $20 par value common stock outstanding.The board of directors declared and issued a 50% stock dividend.The market value of the stock was $27 per share.What is the journal entry to record this stock dividend?

Question

Quizplus · Accepted Answer

A stock dividend transfers a portion of retained earnings to the capital account and has no impact on total equity. Since the corporation is issuing a 50% stock dividend, it will issue an additional 25,000 shares ($20 par value x 50% x 50,000 shares outstanding = $500,000). The market value of the stock is irrelevant to the journal entry, as it only affects the market price per share. Therefore, the correct journal entry to record this stock dividend is:
 
Retained Earnings     $500,000
     Common Stock (50% of par)     $500,000

A Corporation Had 50,000 Shares of $20 Par Value Common