Question

A corporation declared and issued a 10% stock dividend on October 1. The following information was available immediately prior to the dividend: Retained earnings $ 830,000​ Shares issued and outstanding 68,000​ Market value per share $ 23​ Par value per share $ 5​ The amount that contributed capital will increase (decrease) as a result of recording this stock dividend is:

Answer 1

The share capital will increase by $34000

Step-by-step explanation:

dividend declared is in stock (10% of existing holding)

Share capital = 68,000 shares. dividend = 10% of 68,000 = 6,800

Par value of share is $5 per unit. Thus share capital increase is $5 x 6,800 = $32,000

share premium (23-5)= $18 per share. Thus share premium reserve will increase by 18 x 6,800 = $122,400

share premium is the difference between market value and par value of shares.