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Entries for stock dividends Antique Buggy Corporation has 820,000 shares of $35 par common stock outstanding. On June 8, Antique Buggy Corporation declared a 5% stock dividend to be issued August 12 to stockholders of record on July 13. The market price of the stock was $63 per share on June 8. Journalize the entries required on June 8, July 13, and August 12.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 13, Problem 4PEB
Textbook Problem
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Entries for stock dividends

Antique Buggy Corporation has 820,000 shares of $35 par common stock outstanding. On June 8, Antique Buggy Corporation declared a 5% stock dividend to be issued August 12 to stockholders of record on July 13. The market price of the stock was $63 per share on June 8.

Journalize the entries required on June 8, July 13, and August 12.

To determine

Prepare the journal entry for the transactions made on June 8, July 13, and August 12.

Explanation of Solution

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.

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

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
June 8Stock 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)

  • Stock Dividends is a contra stockholders’ equity account with a normal debit balance. Increase in stock dividend decreases the stockholders’ equity account. Therefore, debit Stock Dividends account with $2,583,000.
  • Common Stock Dividends Distributable is a component of stockholders’ equity account, and the amount is increased due to the declaration of stock dividends. Therefore, credit Common Stock Dividends Distributable account with $1,435,000.
  • Paid-in Capital in Excess of Par Value - Common stock is a component of stockholders’ equity account, and the amount is increased due to the increase in capital excess of common stock value. Therefore, credit Paid-in Capital in Excess of Par Value account with $1,148,000.

Working Notes:

(1)

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

Stock dividends shares = {Number of shares outstanding × Stock dividend percentage}= 820,000 shares × 5%= 41,000 shares                

(2)

Compute amount of stock dividends

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Financial Accounting
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