Question

The shareholders’ equity of Raven Company is as shown:

Raven Company

Partial Balance Sheet

1	Common stock, $10 par	$250,000.00
2	Additional Paid-in Capital on Common Stock	150,000.00
3	Retained Earnings	200,000.00
4		$600,000.00

Raven is considering the declaration and issuance of a stock dividend at a time when the market price is $30 per share.

Required:

1.	Assuming the board of directors recommends a 6% stock dividend, prepare:
a.	the journal entry at the date of declaration
b.	the journal entry at the date of issuance
c.	shareholders’ equity after the issuance
2.	Assuming, instead, that a 40% stock dividend is recommended, answer a, b, and c of Requirement 1.

Answer 1

6% stock dividend amounts to =6%*(250000/10)*30=45000
1a)Retained earnings(db)45000
Common stock to be distributed(cr)6%*(250000/10)=15000
Additional paid in capital stock(cr)30000
1b)Common stock to be distributed(db) 15000
common stock,$10 par (cr)15000
1c)Common stock,$10 par =250000+15000=265000
additioanl paid in capital 150000+30000=180000
Retained earnings 200000-45000=155000
Total shareholder equity 600000

2)40% stock dividend amounts to =40%*(250000/10)=100000
1a)Retained earnings(db)100000
Common stock to be distributed(cr) 100000

1b)Common stock to be distributed(db)100000
common stock,$10 par (cr)100000
1c)Common stock,$10 par 350000
additioanl paid in capital 150000
Retained earnings 200000-100000=100000
Total shareholder equity 600000