Question

A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 5% stock dividend on a date when the market price was $11 a share. What is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend?

a. $16,000.
b. $8,000.
c. $22,000.
d. $8,800.

Answer 1

The amount transferred from the retained earnings to paid-in capital accounts due to a 5% stock dividend on 40,000 shares at a market price of $11 is $22,000. This is calculated by taking 5% of 40,000 shares, resulting in 2,000 shares, and multiplying by the market price of $11 each.

Step-by-step explanation:

The question is about a transaction involving the issuing of a stock dividend and the related accounting entry. The company declares a 5% stock dividend on 40,000 shares when the market price is $11 per share. To find the amount transferred from the retained earnings account to the paid-in capital accounts as a result of the stock dividend, you would calculate the market value of the dividend distributed. The stock dividend is 5% of 40,000, which equals 2,000 shares. These shares are valued at the market price of $11 each, making the total value $22,000 (2,000 shares x $11 per share). This amount is then transferred from the retained earnings to the paid-in capital.