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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Pickens Corporation declares and issues a 10% stock dividend. On the date of declaration, the stock is selling for $30 per share. Assuming that there were 50,000 shares previously outstanding, with a $10 par value, prepare the journal entry on the date of declaration to record Pickens’s stock dividend.

To determine

Prepare journal entry to record the given transaction.

Explanation

Stock dividends:

Stock dividends are the number of shares issued by a company to the existing shareholders in a proportion to the number of shares owned by each shareholder, based on a stock dividend percentage.

Prepare journal entry to record the given transaction.

DateAccount Titles and explanationDebit ($)Credit ($)
 Retained earnings150,000 
      Common stock to be distributed (2) 50,000
 

     Additional paid-in capital from stock

     dividend

 100,000
 ( To record declaration of stock dividend)  

(Table 2)

  • Retained earnings are a component of stockholders equity and there is a decrease in the value of the retained earnings. Hence, debit the retained earnings by $150,000.
  • Common stock to be distributed is a component of stockholders equity and there is an increase in the value of the equity. Hence, debit the common stock to be distributed by $50,000.
  • Additional paid-in capital from stock dividend is a component of stockholders equity and there is an increase in the value of the equity...

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