STU Corporation is authorized to issue 500,000 shares of $12.00 par value common stock. As of December 2014, STU's stockholders' equity accounts report the following balances: At the end of 2014, ABD decided to issue a 15% stock dividend, when the market price of the stock was $14 per share.
Determine the dollar amount to be transferred from Retained Earnings to paid-in capital accounts as a result of the stock dividend.

Question

STU Corporation is authorized to issue 500,000 shares of $12.00 par value common stock. As of December 2014, STU's stockholders' equity accounts report the following balances:  At the end of 2014, ABD decided to issue a 15% stock dividend, when the market price of the stock was $14 per share.
Determine the dollar amount to be transferred from Retained Earnings to paid-in capital accounts as a result of the stock dividend.

Quizplus · Accepted Answer

To calculate the dollar amount to be transferred from Retained Earnings to paid-in capital accounts as a result of the stock dividend, we need to first determine the total number of shares outstanding after the dividend.

15% of 500,000 shares = 75,000 shares

Total number of shares outstanding after the dividend = 500,000 + 75,000 = 575,000 shares

The par value of the stock remains the same at $12 per share, so the total par value of the new shares issued is

75,000 shares x $12 par value = $900,000

The market value of the stock is given as $14 per share, so the total market value of the new shares issued is

75,000 shares x $14 market value = $1,050,000

The difference between the par value and the market value of the additional shares represents the amount transferred from Retained Earnings to paid-in capital accounts:

$1,050,000 market value - $900,000 par value = $150,000

Therefore, the dollar amount transferred from Retained Earnings to paid-in capital accounts is $150,000 or choice B.

STU Corporation Is Authorized to Issue 500,000 Shares of $12