Question

Required information [The following information applies to the questions displayed below.] The stockholders' equity of TVX Company at the beginning of the day on February 5 follows. Common stock-$20 par value, 150,000 shares authorized, 63,000 shares issued and outstanding Paid-in capital in excess of par value, common stock Retained earnings Total stockholders' equity $1,260,000 422,000 546,000 $2,228,000 On February 5, the directors declare a 2% stock dividend distributable on February 28 to the February 15 stockholders of record. The stock's market value is $36 per share on February 5 before the stock dividend. 1. Prepare entries to record both the dividend declaration and its distribution.

Answer 1

Number of shares outstanding = 63,000
Current market value of 1 common stock = $36
Stock dividend declared = 2%
Hence, number of shares to be issued = 63,000 x 2%
= 1,260
Hence, amount to be debited to retained earnings = Number of shares to be issued x Current market value of 1 common stock
= 1,260 x 36
= $45,360
Amount to be credited to common stock = Number of shares to be issued x Par value per share
= 1,260 x 20
= $25,200
Amount to be credited to Additional Paid in capital, in excess of par - common stock = Number of shares to be issued x (market value of 1 common stock - Par value per share)
= 1,260 x (36 - 20)
= $20,160

Journal
Date	Account Titles	Debit	Credit
February 5	Retained earnings	$45,360
	Common stock dividend distributable		$25,200
	Paid in capital in excess of par value		$20,160
	( To record declaration of stock dividend)
February 28	Common stock dividend distributable	$25,200
	Common stock		$25,200
	( To record issue of dividend shares)

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