Question

Topic: Dividend JC Company owns multiple investments that pay quarterly dividends. One such investment is stock ownership in Scooter, Inc. Instead of distributing a cash dividend, Scooter, Inc distributed Bear & Luke Company preferred stock to all of its shareholders, including JC Company. (avoid presentation for #4) Should we do it?

Required: How (at what value) should the preferred stock dividend be recorded? Provide appropriate citations.

Answer 1

In order to pay the dividend, one can choose any option i.e cash dividend or preferred stock dividend to its shareholders.

Stock dividend are recorded by moving amount from retained earnings to paid in capital.

At the time of issuance of stock, journal entry to be passed,

By Retained earnings        dr.        amt.

          To stock dividend distributable   cr.     Amt.

Another entry to be passed

By stock dividend distributable     dr.   amt.

            To common Stock cr.                                  Amt.   

            To Additional paid in capital cr.               Amt.

Stock dividend distributed is debited by full amount (distributed as dividend), common stock is credited by amount equal to the product par value per share.