Rick Co. had 30 million shares of $1 par common stock outstanding at January 1, 2018. In October 2018, Rick Co.'s Board of Directors declared and distributed a 1% common stock dividend when the market value of its common stock was $60 per share. In recording this transaction, Rick would:

A. Debit retained earnings for $18 million.

B. Credit paid-in capital - excess of par for $18 million.

C. Credit common stock for $18 million.

D. None of the above is correct.

Question

Business

Rayan Hernandez

31 May, 00:31

Rick Co. had 30 million shares of $1 par common stock outstanding at January 1, 2018. In October 2018, Rick Co.'s Board of Directors declared and distributed a 1% common stock dividend when the market value of its common stock was $60 per share. In recording this transaction, Rick would:

A. Debit retained earnings for $18 million.

B. Credit paid-in capital - excess of par for $18 million.

C. Credit common stock for $18 million.

D. None of the above is correct.

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Answers (1)

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Matias Macias · Answer 1

A. Debit retained earnings for $18 million.

Explanation:

Before recording the journal entry, first we have to determine the dividend shares which are shown below:

= Number of shares * par value of share * common stock dividend percentage

= 30 million shares * $1 * 1%

= 0.30 million shares

Now the journal entry would be

Retained earnings Dr $18 million (0.30 million shares * $60)

To Common Stock $0.30 million (0.30 million shares * $1

To Additional Paid-in Capital in excess of par - Common Stock $17.7 million

(Being the dividend is declared and the remaining balance is credited to the additional paid-in capital account)