Danny Inc. issued a 100% stock dividend of its common stock which had a par value of $.01, and a market value of $123 on declaration date and $62 on payment date. At what amount should retained earnings be capitalized for the additional shares issued? Solution Dividend is paid on the par value and not on the market value. The retained earnings should be capitalized with the par value of $ ..01.

1. Danny Inc. issued a 100% stock dividend of its common stock which had a par value of $.01,
and a market value of $123 on declaration date and $62 on payment date. At what amount should
retained earnings be capitalized for the additional shares issued?
Solution
Dividend is paid on the par value and not on the market value. The retained earnings should be
capitalized with the par value of $ ..01