Answer:
The following journal entries are required on declaration date:
Dr Retained earnings ($10*20000) $200,000
Cr Common stock distributable dividend($2*20000) $40000
Cr Paid=in share capital in excess of par value of $2 $160000
While on distribution date the entries required are:
Dr Common stock distributable dividend $40000
Cr Common stock $40000
Explanation:
First of all, the stock dividend of 20% translates to 20000 shares (100000 shares *20%)
At the declaration date the following entries are required:
Dr Retained earnings ($10*20000) $200,000
Cr Common stock distributable dividend($2*20000) $40000
Cr Paid-in share capital in excess of par value of $2
($10-$2=$8*20000 shares) $160000
Upon distribution of the stock dividend, the stock dividend in dividends distributable account needs to be reclassified to common stock account as follows
Dr Common stock distributable dividend $40000
Cr Common stock $40000
