On June 1,2013,Hale Corporation had 80,000 shares of $20 par value common stock outstanding.On June 2,2013,Hale declared a 50 percent stock dividend to be distributed on July 5,2013,to shareholders of record on June 15,2013.What amount of retained earnings should be transferred to contributed capital because of this dividend?

Question

Quizplus · Accepted Answer

A stock dividend transfers a portion of a company's retained earnings to contributed capital. In this case, Hale Corporation declared a 50 percent stock dividend, which means that the number of outstanding shares will increase by 50 percent or 40,000 shares (80,000 x 0.5). Since this dividend is a stock dividend and not a cash dividend, no cash will be distributed, but each shareholder will receive additional shares of the company.

The amount of retained earnings that should be transferred to contributed capital is equal to the par value per share multiplied by the number of dividend shares. In this case, the par value per share is $20, so the total amount of retained earnings that should be transferred to contributed capital is:
$20 x 40,000 = $800,000

Therefore, the correct answer is B) Par value per share multiplied by the number of dividend shares.

On June 1,2013,Hale Corporation Had 80,000 Shares of $20 Par