Question: Complete the necessary journal entries that Sportswear, Inc. made in order to account for the declaration and distribution of its stock dividend.

Problem: In some cases, companies elect to pay dividends to stockholders in the form of additional shares of stock instead of cash. A stock dividend is normally declared only on common stock and issued to common stockholders. An analysis of Sportswear, Inc.'s common stock is as follows:

                                    Number of Common Shares

Shares authorized                        150,000

Shares issued                             125,000

Shares outstanding                    120,000

On September 1, Sportswear, Inc. declared a 5% stock dividend for its common stockholders. The stock dividend will be distributed on October 13 for holders of record on October 1. Sportswear's common stock has a par value of $10 per share.

Complete the table to reflect the correct number of common shares in the company after the stock dividend is distributed. (Hint: Remember, the number of shares declared (and distributed) are calculated using outstanding shares because only outstanding shares receive dividends)

                                  Number of Common Shares

Shares authorized                       150,000

Shares issued                            131,000

Shares outstanding                    126,000

On September 1, the market price of Sportswear, Inc.'s common stock was $18 per share

On October 1, the market price of Sportswear, Inc.'s common stock was $20 per share

On October 13, the market price of Sportswear, Inc.'s common stock was $14 per share

Complete the necessary journal entries that Sportswear, Inc. made in order to account for the declaration and distributions of its stock dividend.