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On December 31, 2020, the stockholders’ equity section of Campbell, Inc., was as follows: Common stock,...

  1. On December 31, 2020, the stockholders’ equity section of Campbell, Inc., was as follows:

Common stock, par value $10: authorized 30,000 shares;

issued and outstanding 15,000 shares

Additional paid-in-capital                                   $110,000

Retained earnings                                                200,000

On September 1, 2021, Campbell declared a 30% stock dividend, and accordingly issued additional shares, when the far value of the stock was $18 per share. For the year ended December 31, 2021, Campbell sustained a net loss of $50,000. The balance of Campbell’s retained earnings as of December 31 2021 should be?

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Answer #1

Stock dividend is the dividend to the shareholders in the form shares rather than cash. It is reward to shareholders without reducing cash balance but it dilute earnings.

If company issued stock dividend more than 25% is called as large dividend then Journal entry is

Retained earnings a/c _ dr (at par value)

To common stock a/c _ cr (at par value)

In this company declared 30% dividend = 15000 sharesx 30% = 4500 shares at $10per share = $45000.

Therefore retained earnings =

Retained earnings for Dec.2020 is $200000

Less : loss Dec 2021 is $50000

Less : stock dividend $45000

Reatined earnings for Dec. 2021 = $105000.

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