Question

he stockholders’ equity accounts of Vaughn Company have the following balances on December 31, 2020.

Common stock, $10 par, 290,000 shares issued and outstanding		$2,900,000
Paid-in capital in excess of par—common stock		1,300,000
Retained earnings		6,060,000

Shares of Vaughn Company stock are currently selling on the Midwest Stock Exchange at $40.

Prepare the appropriate journal entries for each of the following cases. (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.)

(a)		A stock dividend of 6% is (1) declared and (2) issued.
(b)		A stock dividend of 100% is (1) declared and (2) issued.
(c)		A 2-for-1 stock split is (1) declared and (2) issued.

Answer 1

Case (a):

Account title and Explanation	Debit	Credit
Retained earnings (290,000 x 6% x $40)	$696,000
Common Stock dividend distributable (290,000 x 6% x $10 par)		$174,000
Paid-in Capital in Excess of Par-Common		$522,000
[To record declaration of stock dividends]
Common Stock dividend distributable	$174,000
Common stock		$174,000
[To record issuance of common stock for stock dividend]

Case (b):

Account title and Explanation	Debit	Credit
Retained Earnings (290,000 x 100% x $10 par)	$2,900,000
Common Stock dividend distributable		$2,900,000
[To record declaration of stock dividends]
Common Stock dividend distributable	$2,900,000
Common stock		$2,900,000
[To record issuance of common stock for stock dividend]

Note: It's a large stock dividend, so that stock dividend issued at par.

Case (c):

No Entry for Stock-split