On January 1, Year 2, Zook Company had 26,000 shares of $1 par common stock outstanding. During October, Year 2, the company's board of directors declared and distributed a 1% common stock dividend when the market value of its common stock was $56 per share. In recording this transaction, what amount will be debited to Retained earnings in the journal entry to record the stock dividend?

Question

Business

Daniela Grimes

29 November, 02:55

On January 1, Year 2, Zook Company had 26,000 shares of $1 par common stock outstanding. During October, Year 2, the company's board of directors declared and distributed a 1% common stock dividend when the market value of its common stock was $56 per share. In recording this transaction, what amount will be debited to Retained earnings in the journal entry to record the stock dividend?

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Answers (1)

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Marisa Liu · Answer 1

The $14,560 amount will be debited to Retained earnings in the journal entry to record the stock dividend.

Explanation:

For computing the amount, first we have to compute the stock dividend which is shown below:

Stock dividend = Number of shares * rate of the stock dividend

= 26,000 * 1%

= 260 shares

Since in the question, it is given that the par value is $1 per share whereas the market value is $56 per share so the market value of shares should be recorded instead of par value

So, the amount will be = Stock dividend shares * market value per share

= 260 shares * $56 per share

= $14,560

Hence, the $14,560 amount will be debited to Retained earnings in the journal entry to record the stock dividend.