8. Disregard the stock split (assumed above). Assume instead that a 10 percent stock dividend was declared (after treasury stock repurchase) when the market price of the common stock was $20. Prepare any journal entry that should be made.

Question Completion:

At the end of the year, the records of NCIS Corporation provided the following selected and incomplete data:

Common stock ($10 par value); no changes in account during the year.

Shares authorized: 200,000.

Shares issued: (all shares were issued at $17 per share. Total cash collected: $2,125,000).

Treasury stock: 3,000 shares (repurchased at $20 per share).

The treasury stock was acquired after a stock split was announced.

Net income: $240,340.

Dividends declared and paid: $123,220.

Retained earnings beginning balance: $555,000.

NCIS Corporation

Journal Entry to record the stock dividend:

Debit Retained earnings $244,000

Credit Common stock distributable $122,000

Credit Additional Paid-in Capital $122,000

To record the stock dividend declared.

Explanation:

a) Data and Calculations:

Common stock ($10 par value); no changes in account during the year.

Shares authorized: 200,000.

Shares issued: _125,000 (all shares were issued at $17 per share. Total cash collected: $2,125,000).

= 125,000 ($2,125,000/$17)

Treasury stock: 3,000 shares (repurchased at $20 per share) $60,000

Stock outstanding before the stock dividend = 122,000 (125,000 - 3,000)  

Stock dividend (10%) 12,200 (122,000 * 10%)

Common stock outstanding = 134,200 (122,000 + 12,200) shares

Net income: $240,340.

Dividends declared and paid: $123,220.

Retained earnings beginning balance: $555,000.

Transaction Analysis:

Retained earnings $244,000 (12,200 * 20%) Common stock distributable $122,000 Additional Paid-in Capital $122,000