The stockholders\' equity of Howell Company at July 31, 2012 is presented below:

Question

The stockholders' equity of Howell Company at July 31, 2012 is presented below: Common stock, par value $20 authorized 400,000 shares; issued and outstanding 160,000 shares 3,200,000 Paid-in capital in excess of par 160,000 Retained earnings 650,000

On August 1, 2012 the board of directors of Howell declared a 10% stock dividend on common stock, to be distributed on September 15th. The market price of Howell's common stock was $35 on August 1, 2012, and $38 on Sepetmber 15, 2012. What is the amount of the debit to retained earnings as a result of the declaration and distribution of this stock dividend?

a. 320,000

b. 560,000

c. 608,000

d. 400,000

Can you breakdown the calculation.

Explanation / Answer

We will take the market price which is on the date of declaration not the the date of distribution. so the amount to debit of retained earnings is

160000 shares*10%=16000 shares *$35 per share= $560000 Ans b

Retained Eanings Dr $560000

Stock Dividend Distributable

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