Question

a. Create the journal entry if ABC Company declares and pays a property dividend payable in bonds of DEF Company (bonds are being held to maturity and are carried on ABC’s books at book value of $40,000, but their market value is $48,000)

NOTE: Small stock dividends are treated differently than large stock dividends. A small dividend is less than 20 to 25% of the previously outstanding shares.

b. ABC Company declares and issues a 10% stock dividend. On the date of declaration, the stock is selling for $20. The corporation has 20,000 shares issues and outstanding before the stock dividends. It is $10 par stock. Show the journal entries.

c. Same as b. above except ABC declares and issues a 40% stock dividend.

Answer 1

Answer to part (A)

Debit Bonds $8000
Credit Gain on appreciation of bonds $8000
( $48000 - $40000 )

Debit Retained Earnings [Property Dividend Declared] $48000
Credit Property Dividends Payable $48000
(On declaration date )

Debit Property Dividends Payable $48000
Credit Investments in Bonds $48000
( On the date of payment )

Answer to part (B)

Debit Retained Earinings ( 2000 * $ 20 ) $40000
Credit Common stock dividend distributable $ 20000
Credit Paid in capital in excess of par $ 20000
( On declaration date )

Debit   Common stock dividend distributable $ 20000
Credit Common Stock $ 20000

( when shares are distribute to share holders )

Answer to part ( C)

Debit Retained Earinings ( 8000 * $ 10 ) $80000
Credit Common stock dividend distributable $80000
( On declaration date )

Debit   Common stock dividend distributable $ 80000

Credit Common Stock $ 80000

( when shares are distribute to share holders )