On August 1, 2018, Towson Corp., declared a 10% stock dividend on its common stock when the market value of the common stock was $17 per share. The balance in the common stock account, before the stock dividend was declared, was $800,000. The par value of all common stock is $10. What is the total dollar amount credited to additional paid in capital - common stock on August 1, 2018?

The dollar amount credited to common stock is $40,000

The dollar amount credited to additional paid in capital - common stock is $36,000

Solution:

Before stock dividend is declared, there is 80,000 stocks outstanding (that is, Common stock account balance/par value per stock = 800,000/10)

=> Stock to be distributed as dividend = 80,000 * 5% = 4,000 stocks

As the stock dividend is 5%, this is a small stock dividend = > stock dividend is to be recorded at market value.

We have the entries:

Dr Retained Earnings 76,000

Cr Common stock dividend distributed 40,000

Cr Additional paid-in capital - common stock 36,000

The dollar amount credited to common stock is $40,000

The dollar amount credited to additional paid in capital - common stock is $36,000