Answer:
<u>The journal entry will be as follow:</u>
Dec 31th
Retained Earnings 200,000 debit
Stock Dividends Payable 200,000 credit
to record declared stock dividends
Jan 20th
Stock Dividends payable 200,000 debit
Common Stock 40,000 credit
Additional paid-in 160,000 credit
Explanation:
The company will issue 20% stock
100,000 shares x 20% = 20,000 shares
The company cost for this 20,000 will be the market value
20,000 shares x $10 = 200,000
This will be compare with the face value of the shares to calculate the adidtional paid-in:
20,000 sahres x $2 face value = 40,000 common stock
200,000 market value - 40,000 face value = 160,000 additional paid-in
<u>The journal entry will be as follow:</u>
Dec 31th
We declare the dividends against retained earnings, from there we will take the funds to pay the dividends
Jan 20th
The dividends will be paid with common stock so we write-off the dividdends payable again the issued stock and their aditioanl paid-in.
