Question

On January 1, 2018, Bonita Industries had 110000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 9300 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $13, the corporation declared a 15% stock dividend to be issued to stockholders of record on December 16, 2018. What was the impact of the 15% stock dividend on the balance of the retained earnings account

Answer 1

Answer:

retained earnings will decrease by $196,365

Explanation:

when a small stock dividends distribution is made, the company must use the market value to record the transaction.

December 1, 2018, 15% stock dividend declared

Dr Retained earnings 196,365

    Cr Stock dividends distributable 196,365

The amount of the stock dividend = outstanding stocks x % dividend x market price = (110,000 - 9,300) x 15% x $13 = $196,365. Since retained earnings has a normal credit balance, any debit will result in a decrease.