Question

On January 1, 2012, Wayless Corporation had P 1,200,000 of ordinary shares outstanding that was issued at par and retained earnings of P 750,000. The company issued 30,000 shares of ordinary shares at par on July 1 and earned net income of P 400,000 for the year

Required: Journalize the declaration of a 10% stock dividend on December 10, 2012, for the following two independent assumptions.

(a) Par value is P8 and market value is P15.

(b) Par value is P5 and market value is P8

Answer 1

	Date	Account Titles and Explanation	Debit	Credit
(a)	Dec. 10, 2012	Retained Earnings (18000 x P15)	270000
		Stock Dividend Distributable (18000 x P8)		144000
		Paid-in capital - excess of par		126000
		(To record declaration of stock dividend)
(b)	Dec. 10, 2012	Retained Earnings (27000 x P8)	216000
		Stock Dividend Distributable (27000 x P5)		135000
		Paid-in capital - excess of par		81000
		(To record declaration of stock dividend)

Working:

(a) Number of ordinary shares on December 10, 2012 = (P1200000/P8) + 30000 = 150000 + 30000 = 180000

Stock dividend = 10% x 180000 = 18000

(b)  Number of ordinary shares on December 10, 2012 = (P1200000/P5) + 30000 = 240000 + 30000 = 270000

Stock dividend = 10% x 270000 = 27000