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2 April, 17:41

A corporation declared and issued a 10% stock dividend on October 1. The following information was available immediately prior to the dividend: Retained earnings $ 830,000 Shares issued and outstanding 68,000 Market value per share $ 23 Par value per share $ 5 The amount that contributed capital will increase (decrease) as a result of recording this stock dividend is:

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  1. 2 April, 18:00
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    The share capital will increase by $34000

    Explanation:

    dividend declared is in stock (10% of existing holding)

    Share capital = 68,000 shares. dividend = 10% of 68,000 = 6,800

    Par value of share is $5 per unit. Thus share capital increase is $5 x 6,800 = $32,000

    share premium (23-5) = $18 per share. Thus share premium reserve will increase by 18 x 6,800 = $122,400

    share premium is the difference between market value and par value of shares.
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