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At the beginning of 2021, Sheffield Corp. had retained earnings of $330000. During the year Sheffield...

At the beginning of 2021, Sheffield Corp. had retained earnings of $330000. During the year Sheffield reported net income of $74100, sold treasury stock at a “gain” of $27100, declared a cash dividend of $45100, and declared and issued a small stock dividend of 1400 shares ($10 par value) when the fair value of the stock was $30 per share. The amount of retained earnings available for dividends at the end of 2021 was: $363200. $317000. $32260. $338000.

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Answer #1

Number of shares issued in stock dividend = 1,400

Fair value per share = $30

Amount of stock dividend to be debited to retained earnings = Number of shares issued in stock dividend x Fair value per share

= 1,400 x 30

= $42,000

Retained earnings, beginning = $330,000

Net income = $74,100

Cash dividend = $45,100

Stock dividend = $42,000

Retained earnings, ending = Retained earnings, beginning + Net income - Cash dividend - Stock dividend

= 330,000+75,100-45,100-42,000

= $317,000

The amount of retained earnings available for dividends at the end of 2021 was $317,000.

Second option is correct.

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