On June 1,20x5,Jomax Corporation had 60,000 shares of $10 par value common stock outstanding.On June 2,20x5,Jomax declared a 40 percent stock dividend to be distributed on July 5,20x5,to shareholders of record on June 15,20x5.What amount of retained earnings should be transferred to contributed capital because of this dividend?

Question

Quizplus · Accepted Answer

When a stock dividend is declared, the accounting entry involves transferring an amount from retained earnings to contributed capital. The amount transferred is equal to the par value of the shares issued in the dividend (unless stated otherwise in the question). In this case, the par value of the common stock is $10, and a 40% stock dividend is declared, which means that 24,000 (60,000 shares x 40%) additional shares will be distributed. Therefore, the amount transferred from retained earnings to contributed capital will be $10 x 24,000 = $240,000. The market value of the stock is not relevant in this calculation.

On June 1,20x5,Jomax Corporation Had 60,000 Shares of $10 Par