Question
At January 1, 2026 Marrowby Foods had 200,000 shares of $1 par common stock outstanding. No other shares were issued or reacquired during the year apart from the stock dividends below.
| Date | Event |
|---|
| March 15 | Declared a 10% stock dividend when the market price was $15 per share. |
| April 10 | Distributed the shares for the 10% stock dividend. |
| November 1 | Declared a 50% stock dividend when the market price was $18 per share. |
| November 20 | Distributed the shares for the 50% stock dividend. |
Required: Prepare the journal entries under US GAAP. Use Retained Earnings, Common Stock Dividend Distributable, Common Stock and Paid-in Capital in Excess of Par - Common.
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 10 and IAS 32 — events after the reporting period; equity distributions
A dividend becomes a liability only when it is declared, which is what separates the declaration entry from the payment entry. A dividend declared after the reporting date is not recognised as a liability at that date.
Common mistakes
- Recognising a proposed dividend as a liability before it has been declared.
- Treating a dividend as an expense in profit or loss rather than a distribution of retained earnings.
- Recording a share dividend as though it reduced net assets, when it only moves amounts within equity.
Further readingIAS 10: events after the reporting period