Jersey Joe Scrap Metal originally issued 13,000 shares of $6 par value common stock at $12 per share. The board of directors declares a 12% stock dividend when the market price of the stock is $22 a share. Which of the following is included in the entry to record the declaration of a stock dividend?

Question

BlackTom AI · Accepted Answer

To analyze this stock dividend problem, first determine the key figures: the company has 13,000 shares outstanding, a 12% stock dividend means 1,560 new shares will be issued (13,000 × 12%). The market price is $22 per share, so the total value of the stock dividend is 1,560 × $22 = $34,320.

Option A: "Stock Dividends is debited for $18,720." This is incorrect because the total value of the stock dividend is $34,320, not $18,720, so the debit to Stock Dividends should reflect the full $34,320.

Option B: "Paid-In Capital in Excess of Par—Common is credited for $18,720." This option misstates both the amount and the accounts. The credit side involves two components: (1) Common Stock—Par for the par value of the issued shares (1,560 × $6 = $9,360) and (2) Paid-In Capital in Excess of Par—Common for the remainder (1,560 × ($22 − $6) = 24,960). The figure $18,720 does not align with either component and the option also mentions only a credit to the paid-in capital account, omitting the par value credit.

Option C: "Stock Dividends is debited for $34,320." This matches the correct accounting treatment: we debit Stock Dividends (or Retained Earnings) for the total market value of the dividend, $34,320, to reflect the distribution of assets via the stock dividend.

Option D: "Stock Dividends is credited for $34,320." This is incorrect because stock dividends decrease retained earnings and increase equity accounts via credits to Common Stock—Par and Paid-In Capital in Excess of Par, not a credit to Stock Dividends itself. The Stock Dividends account should be debited, not credited.

In summary, the full correct entry would debit Stock Dividends for $34,320 and credit the appropriate equity accounts (Common Stock—Par for $9,360 and Paid-In Capital in Excess of Par—Common for $24,960). Among the provided options, only Option C correctly states the debit to Stock Dividends for $34,320, while the others contain incorrect amounts or incorrect debit/credit directions.

33:010:272:05 INTRO FINANCIAL ACCT Final exam- Requires Respondus LockDown Browser

Jersey Joe Scrap Metal originally issued 13,000 shares of $6 par value common stock at $12 per share. The board of directors declares a 12% stock dividend when the market price of the stock is $22 a share. Which of the following is included in the entry to record the declaration of a stock dividend?

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