Accounting Midterm Exam ACG-2011: Question 48

A corporation had 50,000 shares of $20 par value common stock outstanding on July 1. Later that day the board of directors declared a 10% stock dividend when the market value of each share was $27. The entry to record this dividend is:

	Debit Retained Earnings $100,000; credit Common Stock Dividend Distributable $100,000.
	Debit Retained Earnings $135,000; credit Cash $135,000.
	Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $135,000.
	No entry is made until the stock is issued.
→	Debit Retained Earnings $135,000; credit Common Stock Dividend Distributable $100,000; credit Paid-In Capital in Excess of Par Value, Common Stock $35,000.

Retained earnings: 50,000 shares x 10% x $27 = $135,000
Common Stock Dividend Distributable: 50,000 shares x 10% x $20 = $100,000
Paid-in Capital in Excess of Par Value, Common Stock: 50,000 shares x 10% x $7 = $35,000