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Jackson Corporation issued a 100% stock dividend of its common stock, which had a par value of $.01, and a market value of $123 before the dividend and $62 after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

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jepessoa

Answer:

par value = $0.01 per stock

Explanation:

Retained earnings are capitalized to measure how the issuance of new stocks affects existing outstanding shares. In this case or any other case, retained earnings will be capitalized at par value, since the market value of the shares doesn't affect it.

If new shares were issued in an unrelated operation, the accounts that would be affected are common stock and additional paid in capital, not retained earnings.

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