Question

Doswell Company issued 500,000 shares of common stock in the current year. Subsequently, Doswell declared a 10% stock dividend. The market value was $50 per share, the par value was $10, and the average issue price was $30 per share.

By what amount will Doswell decrease total stockholders' equity for the dividend?

Answer 1

Ans:

Stock Dividend do not affect total Stockholder's Equity. On issue of stock Dividend, Retained earnings got debited and common stock + Paid in capital got credited. Total stockholder's equity shift from one account to other, but it does not change the total stockholder's equity Value.

So journal entry for stock dividend will be :

Account Title	Debit	Credit
Retained Earnings (50,000 * $50)	$2,500,000
Common Stock (50,00 *$10)		$500,000
Additional Paid in capital		$2,000,000

So net decrease in stockholder's equity = $0.

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