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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Entries for stock dividends

Pro-Builders Corporation has 1,500,000 shares of $5 par common stock outstanding. On September 2, Pro-Builders Corporation declared a 3% stock dividend to be issued November 50 to stockholders of record on October 3. The market price of the stock was $56 per share on September 2.

Journalize the entries required on September 2, October 3, and November 30.

To determine

Stock Dividends: It refers to the payment of dividends by a company to its existing shareholders, in the form of additional shares rather than cash. Stock dividends are paid, when there is inadequate cash availability in the company.

To prepare: The journal entry for the transactions made on September 2, October 3, and November 30.

Explanation

Prepare the journal entry for the declaration of stock dividend on September 2 in the books of Corporation P.

Date Account Titles and Explanation Post Ref. Debit ($) Credit ($)
September 2 Stock Dividends                            (2) 1,620,000

         Common Stock Dividends

         Distributable                         (3)

225,000

         Paid-in Capital in Excess of Par

         Value-Common stock          (4)

1,395,000
(To record the declaration of common stock dividend)

Table (1)

Working Notes:

Compute the number of shares to be distributed as stock dividends.

Stock dividends shares = {Number of shares outstanding × Stock dividend percentage}= 1,500,000 shares × 3%= 45,000 shares (1)

Compute amount of stock dividends.

Stock dividends = Stock dividend shares × Market value per share=45,000 shares(1) × $36= $1,620,000 (2)

Compute the amount of common stock dividends distributable.

Common stock valuedividends distributable} = Stock dividend shares × Par value of stock= 45,000 shares × $5= $225,000 (3)

Compute paid-in capital in excess of par-common stock

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