The issuer of a 5% common stock dividend to common shareholders should transfer from retained earnings to contributed capital an amount equal to the
A) book value of the shares issued.
B) market value of the shares issued.
C) minimum legal requirements.
D) par or stated value of the shares issued.

Question

Quizplus · Accepted Answer

The correct answer is the market value of the shares issued. When a company issues a stock dividend, it transfers the value of the shares from retained earnings to contributed capital based on the market value of the shares at the time of the dividend, not the book value, par value, or any minimum legal requirement. This reflects the economic cost to the company of issuing additional shares.

The Issuer of a 5% Common Stock Dividend to Common