Journalize the declaration of a 15% stock dividend on December 10, 2005:?

Question

On January 1, 2005, Abdella Corporation had $1,150,000 of common stock outstanding that was issued at par. It also had retained earnings of $750,000. The company issued 60,000 shares of common stock at par on July 1 and earned net income of $400,000 for the year.
Instructions
Journalize the declaration of a 15% stock dividend on December 10, 2005, for the following independent assumptions.
1. Par value is $10, and market value is $18.
2. Par value is $5, and market value is $20




I understand the entry names:
Retained Earnings
stock payable distributable
paid in capital in excess of par

but I don't understand how you get the values for those entries.

any ideas?

Answer 1

Retained earnings are not Journalised. Once you complete your Income statement, whatever is left over as Retained earings here 340000(100% - 15% of 400000) after dividend payment here $60000(15% of 400000) is added to the stockholders equity section of the Balance sheet. So 340000 gets added to the stock holders equity section and it goes over by that amount. As you know the accounting equation Assets=Liabilities + Stockholders equity. So you can see where in Balance sheet stock holders equity appears.
Actually how it happens is You write the Net Income subtract dividend payment and the remainder is named as Retained earnings in the Stockholders equity section. Cash then will get automatically reduced by the dividend payout.