On June 1,20xx,Sterling Corporation had 40,000 shares of $10 par value common stock outstanding.On June 2,20xx,Sterling declared a 40 percent stock dividend to be distributed on July 5,20xx,to shareholders of record on June 15,20xx.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 retained earnings to contributed capital, specifically to the additional paid-in capital account. The amount transferred is equal to the par value per share multiplied by the number of dividend shares issued. In this case, the par value is $10 and the dividend is 40%, so the number of dividend shares issued is 16,000 (40,000 x 40%). Therefore, the amount of retained earnings transferred to contributed capital is $160,000 (16,000 x $10).

On June 1,20xx,Sterling Corporation Had 40,000 Shares of $10 Par