Janae Corporation has outstanding 10,000 shares of £10 par value ordinary shares and retained earnings of £500,000.If Janae declares a 10 percent share dividend when the fair value of the shares is £85 per share, the entry includes:

Question

Quizplus · Accepted Answer

A share dividend does not involve the payment of cash, so there will be no debit to cash (choice C) or any other cash-related account. A share dividend also does not affect the par value of the shares, so there will be no debit to Retained Earnings for £10,000 (choice A). Instead, a share dividend creates additional shares that are distributed to existing shareholders. The fair value of the shares is used to determine the amount of the dividend, and any difference between the fair value and the par value of the shares is recorded in a Share Premium account. In this case, since the fair value of the shares is £85 and each share has a par value of £10, the difference is £75 per share. Therefore, choice B is correct, as there will be a credit to Share Premium-Ordinary for £75,000. No other entries are required.

Janae Corporation Has Outstanding 10,000 Shares of £10 Par Value