Question

Company Z has 2.1 million shares of common stock authorized with a par value of $1 and a market price of $52. There are 1.05 million outstanding shares and 0.2625 million shares held in treasury stock. Required: Prepare the journal entry if the company declares and distributes a 10% stock dividend. Show the effect of the 10% stock dividend on assets, liabilities, and stockholders' equity. Prepare the journal entry if the company declares and distributes a 100% stock dividend. Show the effect of the 100% stock dividend on assets, liabilities, and stockholders' equity.

Answer 1

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

a).

Journal Entry:-

Stock dividend A/c (1,050,000 × 10%  × $52)    Dr. $5,460,000

To paid in capital in excess of par-common stock A/c  $105,000

($1,050,000 × 10%)

To common stock A/c           $5,355,000

(Being the declaration and the distribution of the dividend is recorded)

For recording this we debited the stock dividend as it increased the dividend account and credited the common stock and paid in capital as it increased the stockholder equity

b).  Now the effect is presented below:

Assets  +  Liabilities  =  Stockholder ‘s Equity Amount ($)

                             Retained earnings -5,460,000

                           Paid  in capital in excess of par-common stock   105,000

                               Common stock 5,355,000

c).

Journal Entry

Stock dividend A/c   (1,050,000 × 100% × $1)    Dr. $1,050,000

To Common stock A/c          $1,050,000

(Being the declaration and the distribution of the dividend is recorded)

For recording this we debited the stock dividend as it increased the dividend account and credited the common stock as it increased the stockholder equity

d).  Now the effect is

Assets + Liabilities  = Stockholder ‘s Equity Amount ($)

                      Retained earnings -1,050,000

                      Common stock           $1,050,000