On July 1,20x5,Blaylock Corporation had 40,000 shares of its $100 par value common stock outstanding.On July 2,20x5,Blaylock declared a 15 percent stock dividend to be distributed on August 6,20x5,to shareholders of record on July 16,20x5.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, it is transferred from retained earnings to contributed capital at the market value of the stock on the declaration date. Therefore, the market value of the stock at the date of declaration multiplied by the number of dividend shares is the amount that should be transferred from retained earnings to contributed capital. The par value per share multiplied by the number of dividend shares (option D) is only relevant for a stock split, not a stock dividend.

On July 1,20x5,Blaylock Corporation Had 40,000 Shares of Its $100