Question

In: Accounting

On January 1, Year 2, Zook Company had 26,000 shares of $1 par common stock outstanding....

On January 1, Year 2, Zook Company had 26,000 shares of $1 par common stock outstanding. During October, Year 2, the company’s board of directors declared and distributed a 1% common stock dividend when the market value of its common stock was $56 per share. In recording this transaction, what amount will be debited to Retained earnings in the journal entry to record the stock dividend?

Solutions

Expert Solution

Outstanding number of shares =                  26,000 Shares
1% common stock dividend = 1% of 26,000 Shares =                        260 Shares
Market price per shares = $ 56 Per Shares
Par value of the shares = $ 1 Per Shares
There is 260 shares can be distributed as stock dividend
Stock dividend will charged to retained earning on the basis of market value
It means par value and excess of par value both will be debited to retained earnings
Amount debited to retained earning = 260 Shares X $ 56 = $             14,560
Answer = Amount debited to stock dividend = $ 14,560

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