Use this information to answer the following question. Pinnacle Corporation has 90,000 shares of $10 par value common stock outstanding.The following transactions occurred during the year:
Mar. 17 Declared a 10 percent stock dividend to stockholders of record on March 20. Market value of the stock was $22 on March 17.
Mar. 30 Distributed the stock dividend.
-The entry to record the transaction of March 17 is:
A)Stock Dividends 198,000 Common Stock Distributable 90,000
Additional Paid-in Capital 108,000
B)Common Stock Distributable 90,000 Common Stock 90,000
C)Common Stock Distributable 198,000 Common Stock 90,000
Retained Earnings 108,000
D)Stock Dividends 198,000 Cash 198,000

Question

Quizplus · Accepted Answer

A stock dividend is issued to the existing shareholders at a proportionate rate according to their holdings. As per the information given, Pinnacle Corporation declared a 10% stock dividend, which means 9,000 shares (10% of 90,000) will be distributed. The market value of the stock was $22, so the total value of the stock dividend is 9,000 x $22 = $198,000. The entry to record this transaction is Stock Dividends (par value x number of shares) 90,000, Common Stock Distributable (value of the stock dividend) 198,000, and Additional Paid-in Capital (difference between the value of the stock dividend and Common Stock Distributable) 108,000. So option A is the correct answer.

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