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:

Question

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When a company issues a stock dividend, it gives shareholders additional shares of stock instead of cash. In this case, a 15% stock dividend would result in the distribution of 3,750 additional shares of common stock (25,000 x 15% = 3,750). The total value of these additional shares is $48,750 (3,750 shares x $13 per share). To record this dividend, the company would credit Common Stock for the value of the new shares issued ($18,750 or 3,750 shares x $5 par value) and debit Retained Earnings for the remaining value ($30,000 or $48,750 - $18,750). Therefore, the correct answer is D - both a credit to Common Stock for $18,750 and a debit to Retained Earnings for $48,750.

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