Exhibit 16-1
The Zeller Corporation's stockholders' equity accounts have the following balances as of December 31, 2016:
Common stock, $10 par 30,000 shares issued
-Refer to Exhibit 16-1. On January 2, 2017, the board of directors of Zeller declared a 30% stock dividend to be distributed on January 31, 2017. The market price per share of Zeller's common stock was $30 on January 2 and $32 on January 31. As a result of this stock dividend, the retained earnings account should be decreased by

Question

Exhibit 16-1
The Zeller Corporation's stockholders' equity accounts have the following balances as of December 31, 2016:
Common stock, $10 par 30,000 shares issued 
-Refer to Exhibit 16-1. On January 2, 2017, the board of directors of Zeller declared a 30% stock dividend to be distributed on January 31, 2017. The market price per share of Zeller's common stock was $30 on January 2 and $32 on January 31. As a result of this stock dividend, the retained earnings account should be decreased by

Quizplus · Accepted Answer

For a stock dividend, the retained earnings account is decreased by the fair market value of the shares distributed at the time of the declaration. With a 30% stock dividend on 10,000 shares (from Exhibit 16-1, assuming it mentions 10,000 shares), 3,000 shares are distributed. The market price per share on January 2 (the declaration date) is $30. Therefore, the decrease in retained earnings is 3,000 shares * $30/share = $90,000.

Exhibit 16-1 The Zeller Corporation's Stockholders' Equity Accounts Have the Following Balances