Global Corporation had 50,000 shares of $20 par value common stock outstanding on July 1.Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27.The entry to record this dividend is:
A)Debit Retained Earnings $135,000;credit Common Stock Dividend Distributable $135,000.
B)Debit Retained Earnings $135,000;credit Cash $135,000.
C)Debit Retained Earnings $135,000;credit Common Stock Dividend Distributable $100,000;credit Paid-In Capital in Excess of Par Value,Common Stock $35,000.
D)Debit Retained Earnings $100,000;credit Common Stock Dividend Distributable $100,000.
E)No entry is made until the stock is issueD.Retained earnings: 50,000 shares * 10% × $27 = $135,000

Question

Quizplus · Accepted Answer

When a stock dividend is declared, the company transfers a portion of its retained earnings to the common stock dividend distributable account. In this case, the retained earnings will decrease by the market value of the dividend ($135,000), and the common stock dividend distributable account will increase by the par value ($100,000) of the new shares issued. The difference between the market value and par value ($35,000) will be transferred to the paid-in capital in excess of par value, common stock account. Therefore, option C is the only answer that correctly reflects this transaction.

Global Corporation Had 50,000 Shares of $20 Par Value Common