Freidman Corp.has 500,000 shares of $2 par value stock authorized,100,000 shares issued,and 50,000 shares outstanding.On June 1,2014,Jennings' Board of Directors declared a 50% stock dividend.At that time,the stock had market value of $10.How would the company record this transaction?
A)Debit Retained Earnings for $50,000 and credit Common Stock Dividend Distributable for $50,000.
B)Debit Retained Earnings for $500,000,credit Common Stock Dividend Distributable for $50,000,and credit Paid-In Capital in Excess of Par Value,Common Stock for $450,000.
C)Debit Common Stock Dividend Distributable for $50,000 and credit Common Stock,$2 Par Value for $50,000.
D)Debit Common Stock Dividend Distributable for $500,000 and credit Common Stock,$2 Par Value for $500,000.
E)Debit Retained Earnings for $50,000 and credit Common Stock,$2 Par Value for $50,000.

Question

Quizplus · Accepted Answer

The correct answer is A because the company would debit Retained Earnings for the amount of the dividend ($50,000) and credit Common Stock Dividend Distributable for the same amount. This would increase the number of shares outstanding by 50,000 and reduce Retained Earnings by $50,000.