The B. Spaniel Company has Common Stock with a $5 par value. 100,000 shares were authorized and 25,000 shares were issued. Common stock is currently selling at $13 per share. The entry to record the distribution of a 15% common stock dividend includes a:

Question

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When a company distributes a stock dividend, it transfers a portion of the retained earnings to the paid-in capital accounts. The amount transferred is the fair market value of the new shares issued. In this case, the company is issuing a 15% stock dividend, so it needs to issue an additional 3,750 shares (15% of 25,000). The fair market value of each share is $13, so the total value of the stock dividend is $48,750 ($13 x 3,750). The entry to record the distribution of the stock dividend is:
Debit Retained Earnings for $11,250 ($48,750 x 0.15)
Credit Common Stock for $18,750 ($5 x 3,750)
Credit Paid-in Capital in Excess of Par Value-Common for $30,000 ($48,750 - $18,750) 
Therefore, the correct answer is C.

The B Spaniel Company Has Common Stock with a $5 Par