Question

Hancock Company has 900,000 shares authorized and 350,000 shares issued and outstanding of its $2 par value common stock. The stock is currently selling for $20 per share. If Hancock Company declared and issued a 5% stock dividend, what journal entry would the company make?

Answer 1

Answer:

Debit, retained earning for $35000

Credit, common stock for $35000

Explanation:

The journal entry will include debits and credits of the retained earnings and the common stock as well.

The retained earning can be derived by

issued shares = 350,000

share par value = $2

issued stock dividend = 5%

Retained earning =  5       x  ($2 x 350,000)

                                100

                             = 0.05 x $700,000

                             = $35,000

Also, common stock equals $35,000.

These values are entered as Debit and Credit respectively.

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