Question

Mustang Corporation had 100,000 shares of $2 par value common stock outstanding. On December 31, 2018, the company's board of directors declares a 20 percent stock dividend. This stock dividend will be distributed on January 20, 2019 to the stockholders of record on January 15, 2019. The market price of the company's stock is $10 per share on December 31, 2018.
Required:
Complete the necessary journal entry to record.

Answer 1

Answer:please see answer in explanation column

Explanation:

Journal entry for December 31st , 2018

Date Account                         Debit           Credit

31-Dec   Retained Earning          $200,000  

Common stock distributable                                $40,000

Addtional Paid in capital in excess of Par               $160,000

Calculation:

Total Number of shareS= 100000

Value per share= $2

The market value of stock=$10

declared Stock Dividend =20%

Total Number of new stock to be issued to shareholder

= (100000 X  20%) = 20,000 shares

 Retained Earning   = 20000 shares  x $10 market value= $200,000

Common stock=20000 shares  x $2 Par value = $40,000

Paid up capital in excess of Par =20000 shares  x ($10 -$2) = $160,000

Journal to record Stock dividend  distributed on Jan 20, 2019 to the stockholder on record on Jan 15, 2019)  

Date          Account                                     Debit           Credit    

Jan 20 Common stock dividend distributable  $40,000

                  Common stock                                              $40,000

Calculation

Common stock dividend distributable =20000 shares  x $2 Par value = $40,000