Question: Complete the necessary journal entries that Sportswear, Inc. made in order to account for the declaration and distribution of its stock dividend.
Problem: In some cases, companies elect to pay dividends to stockholders in the form of additional shares of stock instead of cash. A stock dividend is normally declared only on common stock and issued to common stockholders. An analysis of Sportswear, Inc.'s common stock is as follows:
Number of Common Shares
Shares authorized 150,000
Shares issued 125,000
Shares outstanding 120,000
On September 1, Sportswear, Inc. declared a 5% stock dividend for its common stockholders. The stock dividend will be distributed on October 13 for holders of record on October 1. Sportswear's common stock has a par value of $10 per share.
Complete the table to reflect the correct number of common shares in the company after the stock dividend is distributed. (Hint: Remember, the number of shares declared (and distributed) are calculated using outstanding shares because only outstanding shares receive dividends)
Number of Common Shares
Shares authorized 150,000
Shares issued 131,000
Shares outstanding 126,000
On September 1, the market price of Sportswear, Inc.'s common stock was $18 per share
On October 1, the market price of Sportswear, Inc.'s common stock was $20 per share
On October 13, the market price of Sportswear, Inc.'s common stock was $14 per share
Complete the necessary journal entries that Sportswear, Inc. made in order to account for the declaration and distributions of its stock dividend.