Jennings Corp.has 1,000,000 shares of $1 par value stock authorized,200,000 shares issued,and 150,000 shares outstanding.On June 1,2014,Jennings' Board of Directors declared a 10% stock dividend.At that time,the stock had market value of $30.How would the company record this transaction?
A)Debit Retained Earnings for $15,000 and credit Common Stock Dividend Distributable for $15,000.
B)Debit Retained Earnings for $450,000,credit Common Stock Dividend Distributable for $15,000,and credit Paid-In Capital in Excess of Par Value,Common Stock for $435,000.
C)Debit Common Stock Dividend Distributable for $450,000 and credit Common Stock,$1 Par Value for $450,000.
D)Debit Common Stock Dividend Distributable for $435,000 and credit Common Stock,$1 Par Value for $435,000.
E)Debit Common Stock Dividend Distributable for $15,000 and credit Common Stock,$1 Par Value for $15,000.

Question

Quizplus · Accepted Answer

The correct answer is B because a 10% stock dividend means that the company will issue 10% of the outstanding shares as a dividend. In this case, the company has 150,000 shares outstanding, so it will issue 15,000 shares as a dividend. The market value of the stock is $30, so the total value of the dividend is $450,000. The company will debit Retained Earnings for $450,000, credit Common Stock Dividend Distributable for $15,000, and credit Paid-In Capital in Excess of Par Value, Common Stock for $435,000.