Jalisco, Inc., had 300,000 shares issued and 250,000 shares outstanding of its $8 par value common stock and its Retained Earnings account balance was $750,000 on December 31, Year 1. On January 1, Year 2, the board of directors declared a 12% stock dividend to its common shareholders when the market value of the stock was $17 per share. Required:a) Determine the decrease in retained earnings as a result of the stock dividend.b) Prepare the entry to record the distribution of the stock dividend.c) How many shares are outstanding after the stock dividend?
What will be an ideal response?
a) $510,000
b)
| Retained earnings | 510,000 | ? |
| Common stock | 240,000 | |
| Paid-in capital in excess of par value - CS | 270,000 |
a) Dividends apply to outstanding shares only.
Shares distributed as stock dividend = Outstanding shares of 250,000 × Stock dividend of 12% = 30,000 shares
Decrease in retained earnings = 30,000 Shares distributed as stock dividend × Market value of $17 per share = $510,000
b) Increase in Common Stock account = Stock dividend of 30,000 shares × Par value of $8 per share = $240,000
c) Shares outstanding after stock dividend = Share previously outstanding of 250,000 + Stock dividend of 30,000 shares = 280,000
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What will be an ideal response?
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