Choice "A" is correct. A 30% common stock dividend would be classified as a large stock dividend by GAAP because the stock dividend is more than 20% to 25% of the previously outstanding shares. For a large stock dividend, retained earnings is debited for the par value of the additional shares issued. The stock dividend would be recorded as follows on the date of declaration by the board of directors:Date of Declaration
| Debit (Dr) | Credit (Cr) |
|---|
| Retained earnings (30% × 1,000 shares × $1.00 par value) | $ 300 | |
| Common stock to be distributed | | $ 300 |
Choice "b" is incorrect. Treasury stock is debited when a company reacquires its own stock, not in a stock dividend transaction.Choice "c" is incorrect. Additional paid in capital would be credited for $2,700 if this stock dividend was regarded as a small stock dividend. A stock dividend that is less than 20% or 25% of the previously outstanding shares would be regarded as a small dividend. If the transaction was regarded as a small dividend rather than a large dividend, the stock dividend would be recorded as follows on the date of declaration by the board of directors:Date of Declaration
| Debit (Dr) | Credit (Cr) |
|---|
| Retained earnings (30% × 1,000 shares × $10.00 fair value) | $ 3,000 | |
| Common stock to be distributed | | $ 2,700 |
| Additional paid-in-capital from stock dividend | | 300 |
Choice "d" is incorrect. Common stock is not debited when recording stock dividend transactions. When stock is issued, common stock is credited.
