On October 15, 2016, a 5% stock dividend was declared and distributed. The marke

Question

On October 15, 2016, a 5% stock dividend was declared and distributed. The market value of the common stock on this date was $32 per share. On the date of declaration and payment, the company had 10 million shares of common stock outstanding. The par value of the common shares was $5.

The journal entry to record the declaration and distribution of the stock dividend will

D. Decrease retained earnings by $13.5 million B. Decrease retained earnings by $16 million A. Decrease retained earnings by $2.5 million C. Increase common stock by $16 million

Explanation / Answer

Amount of dividend = 10 million share x $5 per share x 5% = $2.5 million

Dividend payment decrease the retained earning by $2.5 million.

Option A. Decrease retained earnings by $2.5 million is correct answer.

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