# Nutritious Pet Food Company’s board of directors declares a small stock dividend (20%) on June 30 when the stock’s market value per share is $30. At that time, there are 10,000 shares of$1 par value common stock outstanding (none held in treasury). What is the journal entry to record the declaration of the dividend?

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### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 14, Problem 13EA
Textbook Problem
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## Nutritious Pet Food Company’s board of directors declares a small stock dividend (20%) on June 30 when the stock’s market value per share is $30. At that time, there are 10,000 shares of$1 par value common stock outstanding (none held in treasury). What is the journal entry to record the declaration of the dividend?

To determine

To journalize:

The transactions relating to retained earnings.

Introduction:

Dividend is the sum of money which is regularly paid by the company after a specific period of time to its shareholders from the profits or reserves.

### Explanation of Solution

Recordthe declaration of stock dividend:

 Date Account Debit($) Credit($) June 30 Retained earnings 60,0001 Common stock dividend distributable 2,0002 Additional paid-in capital from common stock 58,0003 (To recorddeclaration of 20% stock dividend)

Table (1)

• Retained earningsis an equity account and it is decreased by $60,000. Therefore, debit the retained earningwith$60,000.
• Common stock dividend distributable is a liability account and it is increased by $2,000. Therefore, common stockdividend payable account is credited with$2,000.
• Additional paid-in capital from common stock is an equity account and it is increased by $58,000. Therefore, additional paid-in capital from common stock account is credited with$58,000.

Working Notes:

1: For calculating the value of retained earnings, firstly need to calculatethe additional numbers of shares to be distributed as stock dividend:

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