On January 1, 2017, Bratislava Corporation had 110,000 no par value common shares outstanding, which had been issued at $5 each.On June 1, the corporation acquired 10,000 shares to be held in the treasury.On December 1, when the market price of the shares was $4, the corporation declared a 10% stock dividend to be issued to shareholders of record on December 16.What was the impact of the 10% stock dividend on the retained earnings account?

Question

Quizplus · Accepted Answer

The 10% stock dividend means that the corporation issued an additional 11,000 shares (110,000 shares x 10%). Since the market price of the shares was $4, the total value of the stock dividend was $44,000 ($4 x 11,000 shares).

To account for the stock dividend, the corporation transfers the market value of the shares issued from retained earnings to paid-in capital. The entry would be:

Retained Earnings  $40,000 
Paid-in Capital in Excess of Par - Common Stock   $4,000 
Common Stock (10,000 shares x $5 par value)            $50,000

Therefore, the impact of the 10% stock dividend on the retained earnings account is a decrease of $40,000.

On January 1, 2017, Bratislava Corporation Had 110,000 No Par