Lamar Industries uses the legal capital approach and issues a stock dividend worth $40,000. What would be the journal entry to record this transaction?

A) $40,000 debit to Cash and credit Common Stock
B) $40,000 debit to Common Stock Dividend Distributable and credit to Cash
C) $40,000 debit to Common Stock Dividend Distributable and credit to Common Stock
D) $40,000 credit to Cash and debit to Retained Earnings

Question

Randu Senanayake · Accepted Answer

Final Answer : C, Explanation :  In a stock dividend, the company distributes additional shares to shareholders, not cash. The entry moves the value from retained earnings (not explicitly mentioned in the options but implied in the process) to common stock and/or additional paid-in capital. Option C correctly reflects the increase in common stock as a result of the stock dividend, without involving cash transactions.

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