[nikita41]

PharmGen, a pharmaceutical company, was founded two years ago. Like most pharmaceutical companies, PharmGen did not make any profits in its first two years of operations since the company spent heavily on research & development to create new drugs. However, in order to continue to attract investors, the company would like to issue a 5% stock dividends this year.

PharmGen currently has 15,000 shares of common stock, and no preferrred stock outstanding. The stock, which has a par value of $2.00, was initially issued at $12 per share. Currently, the stock is trading at $20 per share.

Please look at my journals entry.

Retaining Earnings 9000 (Debit)
Common Stock 1500 (Credit)
Additional Paid in Capital 7500 (Credit)

Please let me know what I am doing wrong?

[rehmanvohra]

The account titles are correct nut the amounts are incorrect.
Common stock will increase by 750 x 2 = 1,500
Additional paid in capital 750 x 18 (market value - par value) = 13,500
Retained earnings will be debited by 750 x 20 = 15,000

Please remember that you will always consider the market value of shares at the time the stock dividends are declared.