Mustang Corporation had 100,000 shares of $2 par value common stock outstanding. On December 31, 2018, the company's board of directors declares a 20 percent stock dividend. This stock dividend will be distributed on January 20, 2019 to the stockholders of record on January 15, 2019. The market price of the company's stock is $10 per share on December 31, 2018.

Complete the necessary journal entry to record the declaration of the stock dividend by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns. If there are multiple debits or multiple credits, list the account titles in alphabetical order.

The following journal entries are required on declaration date:

Dr Retained earnings ($10*20000) $200,000

Cr Common stock distributable dividend ($2*20000) $40000

Cr Paid=in share capital in excess of par value of $2 $160000

While on distribution date the entries required are:

Dr Common stock distributable dividend $40000

Cr Common stock $40000

Explanation:

First of all, the stock dividend of 20% translates to 20000 shares (100000 shares * 20%)

At the declaration date the following entries are required:

Dr Retained earnings ($10*20000) $200,000

Cr Common stock distributable dividend ($2*20000) $40000

Cr Paid-in share capital in excess of par value of $2

($10-$2=$8*20000 shares) $160000

Upon distribution of the stock dividend, the stock dividend in dividends distributable account needs to be reclassified to common stock account as follows

Dr Common stock distributable dividend $40000

Cr Common stock $40000