Question

On January 1, 2017, Novak Corp. had $ 1,430,000 of common stock outstanding that was issued at par and retained earnings of $ 730,000. The company issued 21,000 shares of common stock at par on July 1 and earned net income of $ 400,000 for the year.

Journalize the declaration of a 16% stock dividend on December 10, 2017, for the following two independent assumptions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(a)		Par value is $ 10 and market price is $ 16.
(b)		Par value is $ 5 and market price is $ 9.

No.	Account Titles and Explanation	Debit	Credit
(a)
(b)

Answer 1

S.No.	Account Titles & Explanation	Debit	Credit
(a).	Retained Earnings (26240 * $16)	$419840
	Common Stock Dividend Distributable		$262400
	Paid-in capital in Excess of Par		$157440
	(For recording recording of declaration of stock dividend)
(b).	Retained Earnings (49120 * $9)	$442080
	Common Stock Dividend Distributable		$245600
	Paid-in capital in Excess of Par		$196480
	(For recording recording of declaration of stock dividend)

Working Note;

(a). Number of stock dividend shares will be calculated as follow;

First of let’s calculate avialble outstanding shares;

($1430000 / $10) + 21000

143000 + 21000

= 164000 shares

Stock dividend is 16% hence (164000 * 0.16) = 26240 shares

(b). Number of stock dividend shares will be calculated as follow;

First of let’s calculate avialble outstanding shares;

($1430000 / $5) + 21000

286000 + 21000

= 307000 shares

Stock dividend is 16% hence (307000 * 0.16) = 49120 shares