Question

Rick Co. had 30 million shares of $1 par common stock outstanding at January 1, 2018. In October 2018, Rick Co.'s Board of Directors declared and distributed a 1% common stock dividend when the market value of its common stock was $54 per share. In recording this transaction, Rick would:

Answer 1

Answer and Explanation:

The journal entry to record the given transaction is as follows

Retained earning Dr (0.30 million × $54) $16.2 million

      To Common stock (0.30 million × $1) $0.3 million

      To Additional paid in capital in excess of par (0.30 million × $53) $15.9 million

(Being the stock dividend is declared)

The computation of the shares after declaring the dividend is

= 30 million × 1%

= 0.30 million