Shannon Manufacturing declared a 10% stock dividend when it had 250,000 shares of $3 par value common stock outstanding. The market price per common share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to

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A stock dividend does not involve a cash distribution, so Retained Earnings should not be credited. Common Stock would only be credited if additional shares were issued, which is not the case here. Instead, the credit should be to Paid-in Capital in Excess of Par, which represents the value that shareholders have added to the company above the par value of the original shares. The amount credited should be 10% of the market value of the outstanding shares, or $225,000. Common Stock Dividends Distributable is a temporary account that is debited when the dividend is declared and credited when the stock is distributed. It is not a part of the original entry to record the declaration.

Shannon Manufacturing Declared a 10% Stock Dividend When It Had