Soxlette Company has 700,000 shares authorized and 250,000 shares issued and outstanding of its $4 par value common stock.The stock is currently selling for $60 per share.If Soxlette Company declared and issued a 5% stock dividend,what journal entry would the company make?

Question

Quizplus · Accepted Answer

When a company issues a stock dividend, the company transfers the fair market value of the additional shares from retained earnings to additional paid-in capital and increases the number of outstanding shares. In this case, the company declared and issued a 5% stock dividend, which means the company will issue an additional 12,500 shares (5% of 250,000 shares outstanding). The fair market value of the stock dividend is calculated as 5% of the total market value of the outstanding shares, which is 5%*250,000*$60=$75,000. The journal entry to record the stock dividend is:

Retained Earnings: $75,000
   Common Stock: $50,000
   Additional Paid-in Capital: $25,000

Therefore, option C is the correct answer. Option A is incorrect because the amount transferred to retained earnings is incorrect. Option B is incorrect because it assumes no additional paid-in capital is created. Option D and E are incorrect because the amounts recorded are not based on a calculation of the fair market value of the stock dividend.

Soxlette Company Has 700,000 Shares Authorized and 250,000 Shares Issued Retained Earnings 50,060 Common Stock 50,000\begin{array} { l l l } \text { Retained Earnings } & 50,060 & \\\text { Common Stock } & & 50,000 \\\end{array} Retained Earnings Common Stock ​50,060​50,000​

Soxlette Company Has 700,000 Shares Authorized and 250,000 Shares Issued $\begin{array} { l l l } \text { Retained Earnings } & 50,060 & \\\text { Common Stock } & & 50,000 \\\end{array}$