Question

A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 4% stock dividend on a date when the market price was $12 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.$19,200 b.$32,000 c.$12,800 d.$48,800

Answer 1

Answer:

option A,$19,200

Explanation:

The amount stock dividend issued that needs to be transferred  from retained earnings to paid-in capital accounts by debiting the retained earnings and crediting the paid-in capital accounts is computed by the below formula:

Stock dividend value=stock dividend %* issued shares*market price

stock dividend % is 4%

issued shares is 40,000 shares

market price of stock is $12

stock dividend value=4%*40,000*$12=$19,200

The correct option is $19,200 option A.

One should be misled by the issue price of $8 per share,since that gives a different option which is wrong