Odessa Corporation had 20,000 shares of $2 par value common stock outstanding on July 1. On that day, the board of directors declared a 10% stock dividend when the market value of each share was $9. The stock dividend is to be distributed on July 20 to stockholders of record on July 10. The entry to record the issuance of the shares on July 20 is

Debit Retained earnings $18,000

Credit Common stock $4,000

Credit paid in capital in excess of par value common stock $14,000

(To record declaration of 10% stock dividend)

Explanation:

The overall effect this declaration would has on the retained earnings would be determined using the current market value, meanwhile the effect on common stock would determined using the par value.

The appropriate entries above were determined by:

Stock dividend declared = 10% x 20,000 units x $9 = $18,000

The effect on common stock will be = 10% x 20,000 unit x $2 = $4,000

So, paid in capital in excess of par value common stock is $18,000 - $4,000 = $14,000.