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17 June, 16:43

Rick Co. had 36 million shares of $3 par common stock outstanding at January 1, 2018. In October 2018, Rick Co.'s Board of Directors declared and distributed a 3% common stock dividend when the market value of its common stock was $57 per share. In recording this transaction, Rick would:

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  1. 17 June, 19:25
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    The correct answer is Debit retained earning $61.56 million.

    Explanation:

    According to the scenario, the computation of the given data are as follows:

    Total shares = 36 million

    Common stock dividend = 3%

    So, Issued share = 36 million * 3% = 1.08 million

    So, retained earning = Issued share * Market value

    = 1.08 million * $57 = $61.56 million

    Where common stock = $3 par

    So Common stock value = 1.08 million * $3 = $3.24 million

    And capital paid in excess can be calculated as:

    capital paid in excess = 1.08 million * ($57 - $3) = 1.08 million * $54

    = $58.32 million

    So, the journal entry can be made as:

    Retained earning A/c Dr $61.56 million

    To Common stock value A/c $3.24 million

    To capital paid in excess A/c $58.32 million
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