A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 4% stock dividend on a date when the market price was $12 a share. What is the amount transferred from the Retained Earnings account to Paid-in Capital accounts as a result of the stock dividend?
A) $12,800
B) $19,200
C) $32,000
D) $48,800

Question

Quizplus · Accepted Answer

The total value of the 40,000 issued shares at $8 is $320,000 ($8 x 40,000). 
To calculate the number of shares for the 4% stock dividend, we multiply the total number of issued shares (40,000) by the percentage of the dividend (4%), resulting in 1,600 additional shares (40,000 x 0.04 = 1,600). 
The market value of these additional shares is $12 per share, so the total value of the stock dividend is $19,200 ($12 x 1,600). 
The amount transferred from Retained Earnings to Paid-in Capital as a result of the stock dividend is equal to the total value of the stock dividend, which is $19,200.

A Company with 100,000 Authorized Shares of $4 Par Common