On July 1, 2010, Tobias Corporation had 20,000 shares of its $100 par value common stock outstanding. On July 2, 2010, Tobias declared a 15 percent stock dividend to be distributed on August 6, 2010, to shareholders of record on July 16, 2010. What amount of retained earnings should be transferred to contributed capital because of this dividend?

Question

Quizplus · Accepted Answer

When a company declares a stock dividend, it transfers a portion of its retained earnings to contributed capital. The amount transferred is based on the market value of the stock at the date of declaration, not the date of distribution. Therefore, the correct answer is C - market value of the stock at the date of declaration multiplied by the number of dividend shares. The other choices do not accurately reflect how a stock dividend works.

On July 1, 2010, Tobias Corporation Had 20,000 Shares of Its