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30 March, 07:55

On August 1, 2018, Towson Corp., declared a 5% stock dividend on its common stock when the market value of the common stock was $19 per share. The balance in the common stock account, before the stock dividend was declared, was $800,000. The par value of all common stock is $10. What is the total dollar amount credited to additional paid in capital - common stock on August 1, 2018?

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  1. 30 March, 08:21
    0
    The dollar amount credited to common stock is $40,000

    The dollar amount credited to additional paid in capital - common stock is $36,000

    Explanation:

    Before stock dividend is declared, there is 80,000 stocks outstanding (that is, Common stock account balance/par value per stock = 800,000/10)

    => Stock to be distributed as dividend = 80,000 * 5% = 4,000 stocks

    As the stock dividend is 5%, this is a small stock dividend = > stock dividend is to be recorded at market value.

    We have the entries:

    Dr Retained Earnings 76,000

    Cr Common stock dividend distributable 40,000

    Cr Additional paid-in capital - common stock 36,000

    So:

    The dollar amount credited to common stock is $40,000

    The dollar amount credited to additional paid in capital - common stock is $36,000
  2. 30 March, 08:23
    0
    Additional Paid-in credited by 360,000

    Explanation:

    Retained Earnings 760,000

    Common Stock 800,000 x 5% x 10 = 400,000

    Additional Paid-In 800,000 x 5% x 9 = 360,000
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