On January 1, Swanson Corporation had 60,000 shares of $10 par value common stock outstanding. On March 17, the company declared a 15% stock dividend to stockholders of record on March 20. Market value of the stock was $13 on March 17. The stock was distributed on March 30. The entry to record the transaction of March 30 would include a

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A stock dividend involves the distribution of additional shares of stock to existing shareholders, rather than a cash dividend. The amount of the stock dividend is usually expressed as a percentage of the existing shares outstanding. In this case, Swanson Corporation declared a 15% stock dividend when it had 60,000 shares outstanding, which means that it would distribute an additional 9,000 shares (15% of 60,000) to shareholders.

The market value of the stock on the date of declaration (March 17) is not relevant to the accounting entry for the stock dividend. Instead, the par value of the stock is used to determine the accounting treatment. The par value of Swanson Corporation's common stock is $10 per share.

When a stock dividend is declared, the company must make a journal entry to record the transaction. This entry reflects the increase in the number of shares outstanding and the corresponding decrease in retained earnings. The total amount of the dividend is equal to the market value of the additional shares distributed. However, the par value of the shares is used to allocate the value of the dividend between the common stock account and the additional paid-in capital account.

The journal entry to record the stock dividend when it is distributed on March 30 is as follows:

Debit Common Stock Dividends Distributable $90,000
Credit Common Stock $60,000 ($10 x 60,000 shares)
Credit Paid-in Capital in Excess of Par Value $27,000 ($3 x 9,000 shares)

The Common Stock Dividends Distributable account represents the amount of the dividend that has been declared and is not yet distributed to shareholders. This account is debited when the dividend is distributed because the company is no longer obligated to pay the dividend.

The Common Stock account is credited for the par value of the additional shares distributed. This reflects the increase in the number of shares outstanding.

The Paid-in Capital in Excess of Par Value account is credited for the difference between the market value of the additional shares and their par value. This reflects the additional value that the shareholders have received through the stock dividend.

On January 1, Swanson Corporation Had 60,000 Shares of $10