Rick co. had 30 million shares of $1 par common stock outstanding at january 1, 2018. in october 2018, rick co.'s board of directors declared and distributed a 1% common stock dividend when the market value of its common stock was $60 per share. in recording this transaction, rick would:
a. debit retained earnings for $18 million.
b. credit paid-in capital - excess of par for $18 million.
c. credit common stock for $18 million.
d. none of the above is correct.

A. Debit retained earnings for $18 million.

Explanation:

Before recording the journal entry, first we have to determine the dividend shares which are shown below:

= Number of shares × par value of share × common stock dividend percentage

= 30 million shares × $1 × 1%

= 0.30 million shares

Now the journal entry would be

Retained earnings Dr $18 million       (0.30 million shares × $60)

    To Common Stock $0.30 million       (0.30 million shares × $1

    To  Additional Paid-in Capital in excess of par - Common Stock $17.7 million

(Being the dividend is declared and the remaining balance is credited to the additional paid-in capital account)

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