Happy Holiday, Inc. has 100,000 shares of common stock issued and outstanding, with a par value of $0.01 per share. They declared a 15% common stock dividend; market value is $12 per share. Which of the following is the correct journal entry to record the transaction?

Question

Quizplus · Accepted Answer

When a company declares a stock dividend, it transfers a portion of retained earnings to paid-in capital accounts. The journal entry for a small stock dividend (less than 25-30% of issued shares) includes debiting retained earnings for the fair value of the stock issued and crediting the common stock dividend distributable account at par value for the number of shares issued. Any remaining value is credited to paid-in capital in excess of par-common stock. In this case, the journal entry would be:
Debit Retained Earnings $180,000,
Credit Common Stock Dividend Distributable $150
Credit Paid-In Capital in Excess of Par-Common Stock $179,850.