Austin Motor Works Declared and Distributed a 6% Stock Dividend

question 73

Multiple Choice

Austin Motor Works declared and distributed a 6% stock dividend in 2018 when the stock was selling for $20 per share. There were 4,000,000 shares outstanding at the time of the dividend declaration. The controller recorded the distribution at par value ($1 per share) resulting in a debit to Dividends and a credit to Common Stock for $240,000. Upon review in early 2019 when the 2018 books were still open, the CFO made which of the following correcting entries? (Abbreviations used: APIC = Additional Paid-In Capital)

• A) He made no entry because the controller was correct.
• B) \[\begin{array} { | l | r | r | }
• \hline \text { Dividends } & 4,560,000 & \\
• \hline \text { APIC in Excess of Par-Common } & & 4,560,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | r | r | }
• \hline \text { Dividends } & 4,560,000 & \\
• \hline \text { Common Stock } & & 4,560,000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | c | r | r | }
• \hline \text { APIC in Excess of Par-Common } & 4,560,000 & \\
• \hline \text { Common Stock } & & 4,560,000 \\
• \hline
• \end{array}\]

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Definitions:

Constant of Proportionality

The fixed value that relates two proportional quantities.

Directly Proportional

A relationship between two variables wherein they increase or decrease at the same ratio.

Fifth Power

Raising a number or expression to the exponent of five, multiplying it by itself four times.

Hooke's Law

A principle of physics that states the force needed to extend or compress a spring by some distance is proportional to that distance.