10% dividend is declared.
- Small dividend so use market value to capitalize.
- First determine the number of new shares involved.
- 600 shares x .10 = 60 new shares
- Next determine the proper amount of retained earnings to be capitalized (placed in the stock accounts).
- 60 new shares x $30 = $1,800.
- Retained earnings capitalized are unavailable for future dividends. Retained earnings are moved up into the contributed or legal capital accounts. More shares outstanding with proportionally less value on the books.