Dan Druff Shampoo has 1,000,000 shares of common stock authorized with a par value of $1 per share, of which 500,000 shares are outstanding. When the market value was $9 per share, Druff issued a stock dividend by which for each ten shares held, one share was issued as a stock dividend. The par per share did not change. What entry did Druff record for this transaction?

Question

Quizplus · Accepted Answer

The number of shares issued for the stock dividend is less than 20-25% of the existing outstanding shares. Therefore, the transaction is considered a small stock dividend and retained earnings should be debited for the fair value at date of declaration.
500,000 shares × 1/10 = 50,000 shares × $9 = $450,000

Dan Druff Shampoo Has 1,000,000 Shares of Common Stock Authorized