Table 14-1
The board of directors declares a 10% stock dividend. There are 20,000 common shares authorized and 10,000 outstanding common shares. The current market price of the shares is $12 per share; the average issue price was $10 per share.
-Refer to Table 14-1.The journal entry will require a debit to retained earnings for:

Question

Quizplus · Accepted Answer

The total value of the stock dividend is calculated by multiplying the number of outstanding shares by the dividend percentage, i.e. 10% of 10,000 shares equals 1,000 new shares. The market value of the shares is $12 per share, so the total value of the stock dividend is 1,000 shares x $12 per share = $12,000. 
Since a stock dividend does not involve any cash outflows, the journal entry will credit common stock for the par value of the new shares and credit additional paid-in capital for any excess over par value. The debit side of the journal entry is to retained earnings for the total value of the stock dividend, which is $12,000 in this case. Therefore, the correct answer is B.

Table 14-1 The Board of Directors Declares a 10% Stock Dividend. There