Q9SE_1 - Horngren'S Financial And Managerial Accounting

Question

Question: Journalizing a small stock dividend

Element Water Sports has 13,000 shares of \(1 par value common stock outstanding. 

Element distributes a 5% stock dividend when the market value of its stock is \)15 per share.

Requirements

1. Journalize Element’s declaration of the stock dividend on August 15 and distribution on August 31.

Step-by-Step Solution

Answer

Answer

August15- stock dividend will be debited by $9,750, common stock dividend distribution is credited by $650 and Paid- in capital will be credited by $9,100.

August 31- Common Stock Dividend Distributable will be debited by $650 and Common Stock—$1 Par Value will be credited by $650.

Step 1: Calculation of stock dividend

$$\begin{gathered} \mathbf{Stockdividendshare}\mathbf{=}\mathbf{Noofsharesoutstanding}\mathbf{\times }\mathbf{Percentageofstockdividend} \\ \mathbf{=}\mathbf{13000}\mathbf{\times }\mathbf{5}\mathbf{\%} \\ \mathbf{=}\mathbf{650}\mathbf{shares} \end{gathered}$$

Step 2: Journal entry of stock dividend

Date	Transaction	Debit	Credit
August 15	Stock dividend (650*$15)	$9,750
	Common stock Dividend distribution (650* $1)		$650
	Paid- in capital (650* $14)		$9,100
	To record dividend declared
August 31	Common Stock Dividend Distributable	$650
	Common Stock—$1 Par Value		$650
	To record dividend distributed