Williamson Company declared and distributed a 10% stock dividend when it had 150,000 shares of $1 par value common stock outstanding.The market price per share of common stock was $10 per share when the dividend was declared.The journal entry to record the stock dividend would include a credit to:

Question

Quizplus · Accepted Answer

A stock dividend transfers a portion of retained earnings to paid-in capital accounts. The dividend represents a distribution of the company’s profits. When a 10% stock dividend is declared and distributed, the company issues an additional 15,000 shares (150,000 x 10%). The market value of each share is $10, meaning the total value of the dividend is $150,000 (15,000 x $10). The journal entry to record the stock dividend would include a credit to Retained Earnings for $15,000 (10% x $150,000), and a credit to Paid-in Capital in Excess of Par-Common for the remaining $135,000 ($150,000 - $15,000). The credit to Common Stock is not necessary in this case because the stock dividend does not increase the par value of the stock.

Williamson Company Declared and Distributed a 10% Stock Dividend When