The entries for the declaration and issuance
Crane Corporation has 40,000 shares of $10 par value common stock outstanding. It declares a 15% stock dividend on December 1 when the market price per share is $16. The dividend shares are issued on December 31.
Prepare the entries for the declaration and issuance of the stock dividend. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Sample Solution
The declaration of a stock dividend results in an increase in additional paid-in capital and a decrease in retained earnings. Since the company has 40,000 shares of $10 par value common stock outstanding, the total number of issued common stocks is multiplied by its par value to get the debit amount of $400,000.
Declaration
Account Titles |Debit | Credit
Common Stock (40,000 shares × $10 par value) | 400,000| No Entry
Additional Paid-in Capital from Stock Dividend | 40,000| No Entry
Retained Earnings | 360,000| No Entry
Explanation: The declaration of a stock dividend results in an increase in additional paid-in capital and a decrease in retained earnings. Since the company has 40,000 shares of $10 par value common stock outstanding, the total number of issued common stocks is multiplied by its par value to get the debit amount of $400,000. This represents the reclassification of retained earnings into common stock. To find the credit amount for additional paid-in capital from stock dividends we multiply 15% with the market price per share which is 16 to get 2.4 and then multiply it with 40,000 outstanding shares to get 96, 000 rounded up to be 100 thousand as shown in this entry as credit transaction. Retained Earnings balance would reduce by 360 thousand after deducting 100 thousand from 400 thousand representing debit transaction
Issuance
Account Titles | Debit | Credit
Common Stock (60000 shares ×$10par value) | 600 , 000| No Entry
Additional Paid-In Capital From Stock Dividend | 60 , 000|No Entry
Explanation: Upon issuance of 10 % new dividend resulting from original 40K outstanding stocks there will be 60000 new shares issued at 10 dollars each leading to overall 600 K debited against Common Stocks account and 60 thousand credited against Additional Paid In Capital Account as result due to incremental equity contribution made through issuance of new Shares .