B is corrent. The issuance of a stock dividend less than 20-25% (a “small” stock dividend) requires that the fair value of the stock (on the date of declaration) be transferred from retained earnings, and a dividend greater than 20-25% (a “large” stock dividend) requires that the par value of the stock be transferred from retained earnings. Thus, a 10% stock dividend is considered to be a “small” stock dividend and should be transferred from retained earnings at the FV on the date of declaration as follows:
| Retained earnings | 2,700 (300 × $9) | |
| Common stock | | 600 (300 × $2) |
| APIC | | 2,100 (excess) |
Thus, Sol
should credit $2,100 to additional paid-in capital.
A is incorrect. The issuance of a stock dividend less than 20-25% (a “small” stock dividend) requires that the fair value of the stock (on the date of declaration) be transferred from retained earnings, and a dividend greater than 20-25% (a “large” stock dividend) requires that the par value of the stock be transferred from retained earnings. Thus, a 10% stock dividend is considered to be a “small” stock dividend and should be transferred from retained earnings at the FV on the date of declaration as follows:
| Retained earnings | 2,700 (300 × $9) | |
| Common stock | | 600 (300 × $2) |
| APIC | | 2,100 (excess) |
Thus, Sol
should credit $2,100 to additional paid-in capital.
C is incorrect. The issuance of a stock dividend less than 20-25% (a “small” stock dividend) requires that the fair value of the stock (on the date of declaration) be transferred from retained earnings, and a dividend greater than 20-25% (a “large” stock dividend) requires that the par value of the stock be transferred from retained earnings. Thus, a 10% stock dividend is considered to be a “small” stock dividend and should be transferred from retained earnings at the FV on the date of declaration as follows:
| Retained earnings | 2,700 (300 × $9) | |
| Common stock | | 600 (300 × $2) |
| APIC | | 2,100 (excess) |
Thus, Sol
should credit $2,100 to additional paid-in capital.
D is incorrect. The issuance of a stock dividend less than 20-25% (a “small” stock dividend) requires that the fair value of the stock (on the date of declaration) be transferred from retained earnings, and a dividend greater than 20-25% (a “large” stock dividend) requires that the par value of the stock be transferred from retained earnings. Thus, a 10% stock dividend is considered to be a “small” stock dividend and should be transferred from retained earnings at the FV on the date of declaration as follows:
| Retained earnings | 2,700 (300 × $9) | |
| Common stock | | 600 (300 × $2) |
| APIC | | 2,100 (excess) |
Thus, Sol
should credit $2,100 to additional paid-in capital.
