Exhibit 16-1 The Zeller Corporation's stockholders' equity accounts have the following balances as of December 31, 2014:
-Refer to Exhibit 16-1. On January 2, 2015, the board of directors of Zeller declared a 5% stock dividend to be distributed on January 31, 2015. The market price per share of Zeller's common stock was $30 on January 2 and $32 on January 31. As a result of this stock dividend, the retained earnings account should be decreased by

Question

Exhibit 16-1 The Zeller Corporation's stockholders' equity accounts have the following balances as of December 31, 2014:  
-Refer to Exhibit 16-1. On January 2, 2015, the board of directors of Zeller declared a 5% stock dividend to be distributed on January 31, 2015. The market price per share of Zeller's common stock was $30 on January 2 and $32 on January 31. As a result of this stock dividend, the retained earnings account should be decreased by

Quizplus · Accepted Answer

To calculate the amount to be transferred from retained earnings to the common stock account for the 5% stock dividend, we need to first determine the total number of shares outstanding before and after the dividend. 
Before the dividend:
Common stock: 20,000 shares
Additional paid-in capital: $900,000
Total contributed capital: $1,100,000 ($200,000 + $900,000)
Retained earnings: $1,000,000
Total stockholders' equity: $2,100,000
After the dividend:
Common stock: 21,000 shares (20,000 * 105%)
Par value of common stock: $210,000 (21,000 * $10)
Additional paid-in capital: $870,000 ($900,000 - $30,000)
Total contributed capital: $1,080,000 ($210,000 + $870,000)
Retained earnings: $948,000 ($1,000,000 - $52,000)
Total stockholders' equity: $2,028,000 ($1,080,000 + $948,000)
The difference in retained earnings between before and after the dividend is $52,000 ($1,000,000 - $948,000), which represents the amount of earnings that have been transferred to the common stock account. Therefore, the retained earnings account should be decreased by $52,000 * 3 (for the 3 classes of common stock) = $156,000. However, we also need to take into account the fact that the market price per share of Zeller's common stock increased during the month of January. This means that the amount transferred from retained earnings to the common stock account will be less than $156,000. To calculate the actual amount transferred, we need to use the fair value method. Under this method, the transfer is based on the market price per share on the date of declaration (January 2), which was $30. Therefore, the amount transferred from retained earnings to the common stock account is $30 * 20,000 * 5% = $30,000. Since there are 3 classes of common stock, the total decrease in retained earnings is $30,000 * 3 = $90,000. Therefore, the correct answer is C.

Exhibit 16-1 the Zeller Corporation's Stockholders' Equity Accounts Have the Following