Question

Zealot Inc. has retained earnings of $500,000 and total stockholders' equity of $2,000,000. It has 100,000 shares of $8 par value common stock outstanding, which is currently selling for $30 per share. If Zealot declares a 10% stock dividend on its common stock:

Answer 1

Retained earnings would go down by $300,000

Total paid-in capital would go up by $300,000

Step-by-step explanation:

The 10% stock dividend is to be calculated based on the stock market price of $30,hence the total market value is $30*100,000=$3,000,000

10% stock dividend =$3,000,000*10%=$300,000

The necessary double entries for stock dividend is to debit retained earnings to the tune of $300,000 and corresponding credit entry is posted to common stock.

Stock dividend implies payment of dividends as shares instead of the traditional payment of cash dividends