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On January 1, Brunhilde Corporation had 240,000 common shares issued.On March 17, the company declared a 5% stock dividend to be distributed on March 30.The market value of the shares was $9 on March 17 and $12 on March 30.
-The entry to record the transaction of March 30 would include a
A)credit to Cash for $108,000.
B)debit to Stock Dividends Distributable for $108,000.
C)credit to Retained Earnings for $144,000.
D)debit to Stock Dividends for $108,000.

Question

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On January 1, Brunhilde Corporation had 240,000 common shares issued.On March 17, the company declared a 5% stock dividend to be distributed on March 30.The market value of the shares was $9 on March 17 and $12 on March 30.
-The entry to record the transaction of March 30 would include a
A)credit to Cash for $108,000.
B)debit to Stock Dividends Distributable for $108,000.
C)credit to Retained Earnings for $144,000.
D)debit to Stock Dividends for $108,000.

Quizplus · Accepted Answer

The stock dividends distributable account is used to record the amount of dividends that will be distributed to stockholders. In this case, the stock dividend is 5%, which means that 12,000 additional shares (240,000 x 5%) will be distributed on March 30. The value of these shares on March 30 is $12 each, so the total value of the dividend is $144,000 (12,000 x $12). The debit entry to Stock Dividends Distributable for $108,000 ($144,000 x 75%) recognizes that 75% of the dividend will be distributed to common stockholders. The remaining 25% will be allocated to the preferred stockholders. The remaining entry to Retained Earnings for $36,000 ($144,000 x 25%) recognizes the portion of the dividend that will be allocated to the preferred stockholders.

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