Landess Corporation currently has 120,000 shares outstanding of $1 par value common stock. The stock was originally issued for $12 per share. On March 15, the board of directors declares a 10% stock dividend when the stock is selling for $16 per share. Which of the following is the correct journal entry to record this transaction?

Question

Quizplus · Accepted Answer

When a stock dividend is declared, the company transfers a portion of retained earnings to common stock and additional paid-in capital. In this case, the dividend is 10% or 12,000 shares (120,000 x 10%), and the market value is $16 per share, which means the company would transfer $12,000 (12,000 x $16) from retained earnings to common stock. The remaining $180,000 would be transferred from retained earnings to paid-in capital in excess of par-common. Therefore, the correct journal entry would be to debit Retained Earnings for $192,000 (=$12,000 + $180,000), credit Common Stock Dividend Distributable for $12,000, and credit Paid-In Capital in Excess of Par-Common for $180,000.

Landess Corporation Currently Has 120,000 Shares Outstanding of $1 Par