Question

Soxlette Company has 700,000 shares authorized and 250,000 shares issued and outstanding of its $4 par...

Soxlette Company has 700,000 shares authorized and 250,000 shares issued and outstanding of its $4 par value common stock. The stock is currently selling for $60 per share. If Soxlette Company declared and issued a 30% stock dividend, what journal entry would the company make?

Select one:

A. Retained Earnings 210,000 Common Stock 210,000

B. Retained Earnings 300,000 Common Stock 300,000

C. No journal entry is necessary.

D. Retained Earnings 4,500,000 Common Stock 4,500,000

E. Retained Earnings 18,000,000 Common Stock 18,000,000

Business   Accounting   
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Homework Answers

Answer #1

In case of large stock dividend (usually greater than 20% - 25%), the value of dividend is the par or stated value. Since in the given case , stock dividend declared is 30%, hence par value of stock will be considered for dividend distribution. Market value of share $60, is irrelevant here.

Number of common shares outstanding = 250,000

Stock dividend declared = 30%

Number of shares to be issued = 250,000 x 30%

= 75,000

Par value of 1 share = $4

Hence, retained earnings will be debited by = 75,000 x 4

= $300,000

The following journal entry will be made for stock dividend :

Journal

Account Title and Explanation

Debit

Credit
Retained earnings 300,000
Common stock 300,000

Correct option is (B)

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