Question

​Fallingstar, Inc. has shares of common stock issued and​ outstanding, with a par value of per share. It declared a ​% common stock​ dividend; market value is per share. Which of the following is the correct journal entry to record the​ transaction?

a. debit Common Stock Dividend Distributable 51,154, debit Paid In Capital in Excess of Par-Common $196,606, and credit Retained Earnings $197.760.
b. debit Stock Dividends $197.760 and credit Cash $197.760.
c. debit Stock Dividends $197.760 and credit Paid - In Capital in Excess of Par-Common $197,760.
d. debit Stock Dividends $197.760, credit Common Stock Dividend Distributable 51.154, and credit Paid - In Capital in Excess of Par-Common $196,606.

Answer 1

d. debit Stock Dividends $197.760, credit Common Stock Dividend Distributable $1.154, and credit Paid - In Capital in Excess of Par-Common $196,606.

Step-by-step explanation:

the numbers are missing, but we can infer the answer because when a stock dividend is declared (not distributed), the correct journal entry should be:

Dr Stock dividends

Cr Common stock dividends distributable

Cr Additional paid in capital (if the stock price is higher than par value)

Once the stock dividends are distributed, the journal entry should be:

Dr Common stock dividends distributable

Cr Common stock

Since you used the stock dividends account instead of retained earnings, at the end of the year you will have to close it:

Dr Retained earnings

Cr Stock dividends