ExpertHard1 markMultiple Choice
CPA · Question 21 · Area II: Balance Sheet Accounts
Sunrise Corp. has 200,000 shares of $10 par common stock outstanding. The company declares a 10% stock dividend when the market price is $25 per share. <br/><br/>What journal entry should Sunrise record for the stock dividend?
Sunrise Corp. has 200,000 shares of $10 par common stock outstanding. The company declares a 10% stock dividend when the market price is $25 per share. <br/><br/>What journal entry should Sunrise record for the stock dividend?
Answer options:
A.
Debit Retained Earnings $200,000; Credit Common Stock $200,000
B.
Debit Retained Earnings $500,000; Credit Common Stock $200,000; Credit Additional Paid-in Capital $300,000
C.
Debit Stock Dividends $500,000; Credit Stock Dividends Distributable $500,000
D.
No entry required until shares are distributed
How to approach this question
For small stock dividends (<25%), use market value. Calculate shares to be issued (outstanding shares × dividend percentage), multiply by market price for total charge to retained earnings, allocate between par value and additional paid-in capital.
Full Answer
B.Debit Retained Earnings $500,000; Credit Common Stock $200,000; Credit Additional Paid-in Capital $300,000✓ Correct
Debit Retained Earnings $500,000; Credit Common Stock $200,000; Credit Additional Paid-in Capital $300,000
Small stock dividends (<25%) are recorded at market value per ASC 505-20-30-3. New shares = 200,000 × 10% = 20,000. Market value = 20,000 × $25 = $500,000. This reduces retained earnings and increases common stock (par value) and additional paid-in capital (excess over par).
Common mistakes
Using par value instead of market value for small dividends, not allocating properly between common stock and APIC, or not recording until distribution
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