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:

Proprietary Wealth

Wealth that is owned and controlled by an individual or a company, often in the context of investments or intellectual property.

Market Rate of Return

The average rate of return expected by investors from a market or security index over a specific time period.

CAPM

Stands for the Capital Asset Pricing Model, a model that describes the relationship between the expected return of an asset and its risk.

Liquidity

The ease with which an asset can be converted into cash without significantly affecting its price.