The stockholders’ equity of tvx company at the beginning of the day on february 5 follows:
common stock—$10 par value, 150,000 shares
authorized, 60,000 shares issued and outstanding $ 600,000
paid-in capital in excess of par value, common stock 425,000
retained earnings 550,000
total stockholders’ equity $ 1,575,000
on february 5, the directors declare a 20% stock dividend distributable on february 28 to the february 15 stockholders of record. the stock’s market value is $40 per share on february 5 before the stock dividend.
the stock’s market value is $33.40 per share on february 28.
required :
1. prepare entries to record both the dividend declaration and its distribution.

Journal entries are given in the explanation section:

Explanation:

1. Dividend Declaration -

February 05 - Retained Earnings                 Debit      $480,000

(60,000 x 20% stock dividend) x $40

Stock dividend - common                             Credit      $120,000

(60,000 shares x 20% stock dividend) x $10

Additional paid-in capital in excess of common stock dividend  Credit  $360,000

$(480,000 - 120,000) = $360,000

Note: * As $40 is the market value, stock dividend should be valued at the time of market rate.

** All the shares are issued $10 par value.

2. Stock dividend distribution -

February 28 - Stock dividend distributable - common   Debit      $120,000

Common stock, $10 par value                                          Credit     $120,000

When dividends are distributed among the shareholders', stock dividend becomes debit from credit at the time of declaration.

A dividend is the part of profit which is distributed by the company to its shareholders . The declaration of the dividend takes place when the company actually decides to pay the dividend . The dividend is distributed as a fixed amount per share to the shareholders .  

Explanation:

1 . Dividend declaration

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