Question

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?

Answer 1

Answer:

The $14,560  amount will be debited to Retained earnings in the journal entry to record the stock dividend.

Explanation:

For computing the amount, first we have to compute the stock dividend which is shown below:

Stock dividend = Number of shares × rate of the stock dividend

                         = 26,000 × 1%

                         = 260 shares

Since in the question, it is given that the par value is $1 per share whereas the market value is $56 per share so the market value of shares should be recorded instead of par value

So, the amount will be = Stock dividend shares × market value per share

                                      = 260 shares × $56 per share

                                      = $14,560

Hence, the $14,560  amount will be debited to Retained earnings in the journal entry to record the stock dividend.