Question

The shareholders' equity of Ava Company on January 1, 2017, included the following:

Common stock, $0.5 par; authorized, 800,000 shares; You will need to calculate the issued shared	$252,506
Paid-in capital—excess of par	65,844
Retained earnings	$500,000

On April 1, 2017, the board of directors of Ava declared a 7% stock dividend on common shares, to be distributed on June 1. The market price of Ava’s common stock was $10 on April 1, 2016, and $16 on June 1, 2016.

On April 1, the credit to Common Stock is $________

Answer 1

On April 1, 2017, the board of directors of Ava declared a 7% stock dividend on common shares,

Number of stock dividend = 800000 * 7% = 56000 share

Journal entry on April 1, 2017, like

Retained earnings Dr (56000*10)               $560000

Common stock distribution Cr (56000*0.50)      $28000

Paid-in capital—excess of par Cr (560000-28000) $532000

On April pass the above entry, create a new account Common stock distribution, and the par amount is credit to this account

On April 1, the credit to Common Stock is $0

After declaration, common shares, to be distributed on June 1, 2017,

So entry on that date

Common stock distribution Dr   $28000

Common stock Cr             $28000

On June 1, the credit to Common Stock is $28000