Has 12,200 shares of stock outstanding with a par value of $1 per share. The market value is $27.50 a share. The balance sheet shows $12,200 in the common stock account, $146,598 in the capital in excess of par account, and $263,455 in the retained earnings account. The firm just announced a stock dividend of 15 percent. What is the balance in the retained earnings account after the dividend

$213,130

Explanation:

Stock dividend is the payment of dividend to stockholder in the form of stock/shares of the company. Stock are issued at the market price and the value of the dividend is transferred from the retained earning to the add-in-capital accounts.

Total outstanding shares = 12,200 shares

Stock Dividend = 12,200 shares x 15% = 1,830 share

Stock Dividend Value = Stock dividend x Market value = 1,830 shares x $27.50 = $50,325  

Par Value of Stocks = $1 x 1,830 = $1,830

Add-in-capital excess of par common stock = ($27.5-$1) x 1,830 = $48,495

Journal Entry for the transaction

Dr. Retained Earning                                                $50,325

Cr. Common Stock                                                   $1,830

Cr. Add-in-Capital excess of Par common stock   $48,495

Debit entry in retained earning will reduce the balance because retained earnings account has credit nature.

Retained earning = $263,455 - $50,325 = $213,130

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