A company issues a 4 % stock dividend when the price of the stock was $6 per share.The company has 20 million common shares outstanding prior to the stock dividend.How would the company account for this stock dividend?
A)Debit retained earnings; Credit common shares
B)Debit cash; Credit common shares
C)Debit retained earnings; Credit contributed surplus
D)Debit common shares; Credit contributed surplus

Question

Quizplus · Accepted Answer

A stock dividend involves transferring amounts from retained earnings to the common shares account, reflecting the issuance of additional shares to existing shareholders. It does not involve cash transactions, hence options B and D are incorrect. Option C is incorrect because the credit is typically to common shares, not contributed surplus, for a stock dividend.

A Company Issues a 4 % Stock Dividend When the Price