Question

The shareholders’ equity of Core Technologies Company on June 30, 2020, included the following:

Common stock, $1 par; authorized, 7 million shares; issued and outstanding, 2 million shares	$	2,000,000
Paid-in capital—excess of par		8,000,000
Retained earnings		20,000,000

On April 1, 2021, the board of directors of Core Technologies declared a 10% stock dividend on common shares, to be distributed on June 1. The market price of Core Technologies’ common stock was $36 on April 1, 2021, and $46 on June 1, 2021.

Required:
Complete the below table to calculate the stock dividend. Prepare the journal entries to record the declaration and distribution of the stock dividend.

Answer 1

Stock dividend:

Stock dividend = 2,000,000 outstanding shares x 10% x $ 36 Market price of common stock on the date of declaration

= 2,000,000 x 10% x $36

= 200,000 x $36

=$7,200,000

Journal Entries:

Date	Account title and Explanation	Debit	Credit
Apr 1, 2021	Retained earnings [2,000,000 x 10% x $36]	$7,200,000
	Common stock dividend distributable [2,000,000 x 10% x $1 par]		$200,000
	Paid-in capital in Excess of par		$7,000,000
	[To record declaration of stock dividend]
Jun 1,2021	Common stock dividend distributable	$200,000
	Common stock		$200,000
	[To record issuance of stock dividends]