Question

On October 15, 2018, a 5% stock dividend was declared and distributed. The fair value of the common stock on this date was $31.8 per share. Fractional share rights represented 100,000 shares. Cash was paid in lieu of issuing fractional share rights. On the date of declaration and payment, the company had 11.2 million shares of common stock outstanding. The par of the common shares was $5.
Required: Prepare any necessary journal entries to record the above events.

Answer 1

Answer:

Dr Retained earnings $ 17,808,000

Cr Common stock $2,300,000

Cr Paid-in capital - excess of par $12,328,000

Cr Cash $ 3,180,000

Explanation:

October 15, 2018

Dr Retained earnings (560,000 x $31.8) $17,808,000

Cr Common stock (560,000 - 100,000) x $5 $2,300,000

Cr Paid-in capital - excess of par $12,328,000

[(460,000 x ($31.8 - $5)]

Cr Cash (100,000 x $31.8) 3,180,000

11.2 million shares x 5% = 560,000 shares