Luke Enterprises has 300,000 shares of $20 par common stock outstanding. On January 19, Luke Enterprises declared a 3% stock dividend. The market price of the stock on January 19 was $28 per share. The journal entry to record the stock dividend would include .
a. a debit to Stock Dividends Distributable for $252,000.b. a debit to Cash for $252,000.c. None of these choices are correct. d. a credit to Stock Dividends for $180,000.

C) None of these choices are correct.

The journal entry should be:

Dr Retained earnings 252,000

    Cr Common stock 180,000

    Cr Paid in capital in excess of par value 72,000

Explanation:

since the corporation has 300,000 outstanding stocks, they will distribute 300,000 x 3% = 9,000 new common stocks

Since the number of stocks issued are less than 20%, the dividends must be recorded at market value:

9,000 stocks x $28 = $252,000

common stock account = 9,000 x $20 = $180,000

paid in capital in excess of par value = $252,000 - $180,000 = $72,000

The journal entry should be:

Dr Retained earnings 252,000 (dividends always reduce retained earnings)

    Cr Common stock 180,000 (new stocks are issued)

    Cr Paid in capital in excess of par value 72,000

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