Question

Company Z has 2.55 million shares of common stock authorized with a par value of $1 and a market price of $61. There are 1.275 million outstanding shares and 0.31875 million shares held in treasury stock.

Required:

1. Prepare the journal entry if the company declares and distributes a 10% stock dividend.
2. Show the effect of the 10% stock dividend on assets, liabilities, and stockholders' equity.
3. Prepare the journal entry if the company declares and distributes a 100% stock dividend.
4. Show the effect of the 100% stock dividend on assets, liabilities, and stockholders' equity.

Answer 1

Million outstanding shares	1.275
Add: Million held in treasury stock	0.31875
Million shares issued	1.59375
Number of stock outstanding shares	1,275,000
Multiply: Distributes a 10% stock dividend	10%
Number of stock dividend for part A	127,500
Number of stock outstanding shares	1,275,000
Multiply: Distributes a 10% stock dividend	100%
Number of stock dividend for part C	1,275,000

Date	General journal	Debit	Credit
Answer A	Retained Earnings (127500*61)	7,777,500
	Paid in capital excess of par value (127500*(61-1))		7,650,000
	Common stock (127500*1)		127,500
	(To record declares and distributes a 10% stock dividend.) (Hint: Small stock dividend) (Stok dividend less than 25%)
Answer C	Retained Earnings (1275000*1)	1,275,000
	Common stock		1,275,000
	(To record declares and distributes a 100% stock dividend.) (Hint: Large stock dividend) (Stok dividend more than 25%)

Par value of the stock is considered under the Large stock dividend. (ignore the market value per share)

Show the effect of the 10% stock dividend on assets, liabilities, and stockholders' equity.
Assets,	No effect
Liabilities,	No effect
Stockholders' equity	No effect
Increase in Paid in capital excess of par value	7,650,000
Increase in Common stock	127,500
Decrease in Retained Earnings	(7,777,500)
Net effect on Stockholders' equity	0
Show the effect of the 100% stock dividend on assets, liabilities, and stockholders' equity.
Assets,	No effect
Liabilities,	No effect
Stockholders' equity	No effect
Paid in capital excess of par value	Not applicable
Increase in Common stock	1,275,000
Decrease in Retained Earnings	(1,275,000)
Net effect on Stockholders' equity	0