Question

A corporation declared and issued a 15% stock dividend on October 1. The following information was available immediately prior to the dividend:

Retained earnings $650,000
Shares issued and outstanding 50,000
Market value per share $25
Par value per share $5


The amount that contributed capital will increase (decrease) as a result of recording this stock dividend is:

a.$37,500.
b.$(187,500).
c.$0.
d $(37,500).
e.$187,500.

Answer 1

The contributed capital will increase by $187,500 ,hence option E is correct.

Step-by-step explanation:

The number of shares given as dividend is =15% of outstanding shares

15% of 50000=7500shares

Given at the current market price,then the total increase in share capital is 7500*$25=$187,500.

The share capital and share premium accounts will be both increase by $187500 in total.