Stock dividends ch 9

Stock dividends ch 9 - Journal entry to declare stock...

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Stock dividends – the corporation distribute additional shares of its own stock to its stockholders without receiving any payment in return Why a stock dividend? Can be used to keep the market price on the stock affordable When you issue stock dividend, the market price goes down When you issue stock, you’re no better off than you were earlier provide evidence of management’s confidence that company is doing well accounting for stock dividends small stock dividend distribution is < 25% of the previously outstanding shares capitalize retained earnings for the market value of the shares to be distributed recording a small stock dividend Ex: on January 31, 2008, Mars declared a 2% stock dividend when the stock was selling for $10 per share. The stock will be distributed to stockholders on March 1, 2008.
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Unformatted text preview: Journal entry to declare stock dividend Outstanding shares (100,000 X 2% stock dividends will be given out) = 2,000 X $10 market p = $20,000 Outstanding shares X % = # of stock dividends # of stock dividends X market p =stock dividends DEBIT retained earnings 20,000 CREDIT common stock dividend distributable 2,000 # of shares X Par value 2,000 X $1 par = 2,000 CREDIT PIC in excess of par 18,000 (20,000 2,000) Journal entry to pay stock dividend DEBIT common stock dividend distributable 2,000 CREDIT Common Stock 2,000 Net effect: equity is unchanged - we redistributed balances in equity accounts Issued 2,000 more shares Increased contributed capital in excess by 18,000 Retained earnings has decreased by 20,000...
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This note was uploaded on 02/09/2012 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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