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13 August, 06:50

On January 1, Year 2, Zook Company had 26,000 shares of $1 par common stock outstanding. During October, Year 2, the company's board of directors declared and distributed a 1% common stock dividend when the market value of its common stock was $56 per share. In recording this transaction, what amount will be debited to Retained earnings in the journal entry to record the stock dividend?

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  1. 13 August, 08:10
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    The $14,560 amount will be debited to Retained earnings in the journal entry to record the stock dividend.

    Explanation:

    For computing the amount, first we have to compute the stock dividend which is shown below:

    Stock dividend = Number of shares * rate of the stock dividend

    = 26,000 * 1%

    = 260 shares

    Since in the question, it is given that the par value is $1 per share whereas the market value is $56 per share so the market value of shares should be recorded instead of par value

    So, the amount will be = Stock dividend shares * market value per share

    = 260 shares * $56 per share

    = $14,560

    Hence, the $14,560 amount will be debited to Retained earnings in the journal entry to record the stock dividend.
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