A corporation declared and issued a 15% stock dividend on October 1. The following information was available immediately prior to the dividend:

Retained earnings $650,000

Shares issued and outstanding 50,000

Market value per share $25

Par value per share $5

The amount that contributed capital will increase (decrease) as a result of recording this stock dividend is:

a.$37,500.

b.$ (187,500).

c.$0.

d $ (37,500).

e.$187,500.

Question

Business

Imogen

21 January, 10:04

A corporation declared and issued a 15% stock dividend on October 1. The following information was available immediately prior to the dividend:

Retained earnings $650,000

Shares issued and outstanding 50,000

Market value per share $25

Par value per share $5

The amount that contributed capital will increase (decrease) as a result of recording this stock dividend is:

a.$37,500.

b.$ (187,500).

c.$0.

d $ (37,500).

e.$187,500.

+1

Answers (1)

Know the Answer?

Adison Gordon · Answer 1

The contributed capital will increase by $187,500, hence option E is correct.

Explanation:

The number of shares given as dividend is = 15% of outstanding shares

15% of 50000=7500shares

Given at the current market price, then the total increase in share capital is 7500*$25=$187,500.

The share capital and share premium accounts will be both increase by $187500 in total.