Stark Company's 15% Stock Dividend Should Be Accounted for as a Debit

question 89

Short Answer

Stark Company's 15% stock dividend should be accounted for as a debit to retained earnings for the fair market value of the dividend and credited to capital stock and capital in excess of par.The auditor should be sure the board of directors authorized the dividend through review of the board minutes and should examine The Wall Street Journal or another financial reporting service to determine the fair market value of the dividend at the time of declaration.The auditor could then trace the amounts to their recording in the general ledger to determine if they were properly accounted for.

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Definitions:

Scarcity

Refers to the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Marginal Revenue

The additional income earned from selling one more unit of a good or service.

Additional Unit

An extra item or piece beyond the current production or stock, often considered in decision-making regarding costs and prices.

Marginal Revenue

The extra revenue earned by selling an additional unit of a product or service.