Mike's Motors has 240,000 shares of $5-par common stock outstanding. They have declared a 10% stock dividend. The current market price of the common stock is $11/share. The amount that will be debited to Retained Earnings on the date of declaration is:

Question

Quizplus · Accepted Answer

To calculate the amount that will be debited to Retained Earnings, we need to first find the total number of shares after the dividend. 
10% stock dividend means that 10% of the outstanding shares (240,000) will be distributed as new shares. 
So, 10% of 240,000 = 24,000 new shares will be issued. 
The total number of shares after the dividend will be 240,000 + 24,000 = 264,000 shares. 
The par value of the new shares is 24,000 x $5 = $120,000. 
The market value of the new shares is 24,000 x $11 = $264,000. 
The amount that will be debited to Retained Earnings is the difference between the market value and the par value of the new shares. 
So, $264,000 - $120,000 = $144,000. 
Therefore, the correct answer is C, $264,000.

Mike's Motors Has 240,000 Shares of $5-Par Common Stock Outstanding