Stark Company's 15% Stock Dividend Should Be Accounted for as a Debit

Short Answer

Stark Company's 15% stock dividend should be accounted for as a debit to retained earnings for the fair market value of the dividend and credited to capital stock and capital in excess of par.The auditor should be sure the board of directors authorized the dividend through review of the board minutes and should examine The Wall Street Journal or another financial reporting service to determine the fair market value of the dividend at the time of declaration.The auditor could then trace the amounts to their recording in the general ledger to determine if they were properly accounted for.