Question

Journalizing cash and stock dividends

Self-Defense Schools, Inc. is authorized to issue 200,000 shares of \(2 par common stock. The company issued 73,000 shares at \)5 per share. When the market price of common stock was \(7 per share, Self-Defense Schools declared and distributed a 14% stock dividend. Later, Self-Defense Schools declared and paid a \)0.70 per share cash dividend.

Requirements

1. Journalize the declaration and the distribution of the stock dividend.

Short answer

Retained Earnings is debited $71,540; Common stock dividend $51,100 and paid in capital in excess of par $20,440 is credited

Common stock dividend is debited, and Common stock is credited with $51,100

Step-by-step solution

Basic Introduction-

Stock dividend 10,220 shares (73,000* 14%)

Retained Earnings(10,220 shares * $7)

Common stock dividend (10,220 shares * $5)

Paid in capital in excess of par[10,220 shares ($7- $5)]

Journals-

Date	Transaction	Debit	Credit
	Retained Earnings	$71,540
	Common stock dividend		$51,100
	Paid in capital in excess of par		$20,440
	To record stock dividend declared
	Common stock dividend	$51,100
	Common stock		$51,100
	To record dividend paid