Question

Rick Co. had 31 million shares of $2 par common stock outstanding at January 1, 2018....

Rick Co. had 31 million shares of $2 par common stock outstanding at January 1, 2018. In October 2018, Rick Co.'s Board of Directors declared and distributed a 2% common stock dividend when the market value of its common stock was $65 per share. In recording this transaction, Rick would:

Multiple Choice

  • Credit paid-in capital—excess of par for $40.30 million.

  • Credit common stock for $40.30 million.

  • None of these answer choices are correct.

  • Debit retained earnings for $40.30 million.

Homework Answers

Answer #1
Answer
Correct Answer = Debit retained earnings for $40.30 million
Working Note:
Particulars Amount
a. Common Stock outstanding at January 1, 2018 31,00,000
b. Market Value per common stock at the time Declaration of Dividend $ 65
c. Total market value of common stock outstanding (a * b) $ 20,15,00,000
d. Declared and distributed 2% common stock dividend (c * 2%) $ 40,30,000
Debit retained earnings for $ 40.30 million
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