Question

The issuer of an ordinary share dividend to ordinary shareholders should transfer from retained earnings to...

The issuer of an ordinary share dividend to ordinary shareholders should transfer from retained earnings to contributed capital an amount equal to the
Select one:
a. minimum legal requirements.
b. par or stated value of the shares issued.
c. fair value of the shares issued.
d. book value of the shares issued.
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Answer #1

The correct answer is C "fair value of the shares issued"

The journal entry for stock dividend is:

Retained earnings Dr. [No. of shares x % of stock dividend declared x Fair value of shares]

To Ordinary shares [No. of shares x % of stock dividend declared x Par value of shares]

To APIC- Ordinary shares [No. of shares x % of stock dividend declared x (Fair value - Par value)]

Thus, in such a way the Fair value is transferred from retained earnings to Contributed capital (allocated between "Ordinary shares A/c" and "APIC A/c" based on par value of shares]

Contributed capital includes both Ordinary shares A/c and APIC A/c.

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