Hello Carla,
Hope you are safe & doing well in CMA study
To solve this question, it is better to know how the transaction should be recorded in accounting books (Journal Entry).
5% stock dividend is a small amount (
less than 20-25%) >>>
Use the fair value method100,000 share x 5% = 5,000 share of stock dividend
5,000 shares x $25 = $125,000 Market (fair) value of stock dividends >>>
Reduce retained earnings a/c5,000 shares x $5 = $25,000 Par value of stock dividends >>> Increase common stock a/c
$125,000 - $25,000 = $100,000 Excess of Par value >>>
Increase additional paid-in capital a/cJournal Entry:
Dr Retained Earnings $125,000
Cr Common stock $25,000
Cr Additional paid-in capital $100,000
(Combined entry for both of declaration & distribution of stock dividend)
Hope this will be helpful
Wish you best of luck, success, safe & healthy condition
Kind regards
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Samer Ahmad, FMVA, SCA
Kuwait
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Original Message:
Sent: 06-17-2020 10:01 AM
From: Carla Loera
Subject: Exam 1 Additional Practice Question
Hi, I am currently studying to hopefully take Part 1 in September and need a bit of help with the following question, the answer is A but there is no explanation.
A publicly-traded company has 100,000 outstanding shares of common stock, with a par value of
$5. The company uses U.S. GAAP to prepare its financial statements. The company recently
declared a 5% stock dividend. On the date the stock dividend was declared, the company's stock
was trading at $25 per share. On the date of declaration, the company's
a. additional paid-in capital will increase.
b. retained earnings will increase.
c. total shareholders' equity will decrease.
d. outstanding shares will decrease.
TIA
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Carla Loera
Student
Laredo TX
United States
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