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:

Question

Business

Osborn

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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Answers (1)

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Asher Rice · Answer 1

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