Page 527 - Accounting Principles (A Business Perspective)

13. Corporations: Paid-in capital, retained earnings, dividends, and treasury stock

Suppose, on the other hand, that the common stock in the preceding example is no-par stock and has a stated
value of USD 50 per share. The entry to record the declaration of the stock dividend (when the market value is USD
125) is:

Retained earnings (800 shares x $125) (-SE) 100,000
Stock dividends distributable – Common
(800 shares x $50) (+SE) 40,000
Paid-in capital – stock dividends (800 shares 60,000
x $75) (+SE)
To record the declaration of a stock dividend.
The entry to record the issuance of the stock dividend is:
Stock dividend distributable – Common (-SE) 40,000
Common stock (+SE) 40,000
To record the issuance of the stock dividend.
Recording large stock dividends A stock dividend of more than 20 to 25 per cent of the outstanding shares
is a large stock dividend. Since one purpose of a large stock dividend is to reduce the market value of the stock so
the shares can be traded more easily, firms do not use the current market value of the stock in the entry. They

account for such dividends at their par or stated value rather than at their current market value. The laws of the
state of incorporation or the board of directors establish the amounts for stocks without par or stated value.
To illustrate the treatment of a stock dividend of more than 20 to 25 per cent, assume X Corporation has been
authorized to issue 10,000 shares of USD 10 par value common stock, of which 5,000 shares are outstanding. X
Corporation declared a 30 per cent stock dividend (1,500 shares) on 2010 September 20, to be issued on 2010
October 15. The required entries are:

Exhibit 99: Stock dividends

Sept. 20 Retained earnings (or Stock Dividends) (1,500 15,000
shares x $10) (-SE)
Stock dividend distributable – Common (+SE) 15,000
To declare a 30% stock dividend.

Oct. 15 Stock dividend distributable – Common (-SE) 15,000
Common stock (+SE) 15,000
To issue the 30% stock dividend.
Note that although firms account for the small stock dividend at current market value, they account for the 30
per cent stock dividend at par value (1,500 shares X USD 10 = USD 15,000). Because of the differences in

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