Global Corporation had 50,000 shares of $20 par value common stock outstanding on July 1. Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27. The entry to record this dividend is:

Question

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When a stock dividend is declared, a portion of retained earnings is transferred to common stock dividend distributable. The amount transferred is equal to the fair market value of the stock being issued. In this case, 10% of 50,000 shares is 5,000 shares, and the fair market value of each share is $27, so the total value of the dividend is 5,000 shares * $27 = $135,000. Of that amount, $100,000 is transferred to common stock dividend distributable (5,000 shares * $20 par value), and the remaining $35,000 is transferred to the paid-in capital in excess of par value, common stock account. Therefore, the correct entry is to debit retained earnings for $135,000, credit common stock dividend distributable for $100,000, and credit paid-in capital in excess of par value, common stock for $35,000.

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