Lorens Manufacturing declared a 10% stock dividend when it had 200,000 shares of $5 par value common stock outstanding. The market price per common share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to:
A) Stock Dividends of $240,000.
B) Paid-in Capital in Excess of Par for $140,000.
C) Common Stock for $240,000.
D) Stock Dividends for $100,000.

Question

Quizplus · Accepted Answer

A stock dividend is a distribution of additional shares of a company's stock to its shareholders. In this case, Lorens Manufacturing declared a 10% stock dividend, which means that each shareholder will receive an additional 10% of their current number of shares.

To record this transaction, the following entry is made:

Stock Dividends (10% x 200,000 shares x $5 par value)               $100,000
Paid-in Capital in Excess of Par Value                              $140,000
Common Stock (10% x 200,000 shares x $5 par value)                  $100,000
     Paid-in Capital in Excess of Par Value (10% x $12 x 200,000)           $140,000

The credit to Stock Dividends is equal to the par value of the additional shares distributed (10% x 200,000 shares x $5 par value), which is $100,000. Therefore, choice D is incorrect.

The credit to Common Stock is also equal to the par value of the additional shares distributed (10% x 200,000 shares x $5 par value), which is $100,000. However, this does not account for the additional value of the shares, which is represented by the credit to Paid-in Capital in Excess of Par Value. Therefore, choice C is incorrect.

The credit to Paid-in Capital in Excess of Par Value represents the additional value of the shares distributed (10% x $12 x 200,000), which is $140,000. This is the correct choice for this question.

Lorens Manufacturing Declared a 10% Stock Dividend When It Had