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A corporation with $10 par common stock issues a small stock dividend. The capitalization of retained earnings is equal to: Multiple Choice The par value of the shares to be distributed. The par value of the shares outstanding. The market value of the shares to be distributed. The market value of the shares outstanding. There is no capitalization of retained earnings in the case of a small stock dividend.

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Answer:

The capitalization of retained earnings is equal to:

The par value of the shares to be distributed.

Explanation:

Common stock par value = $10

Capitalization of retained earnings is the conversion of retained earnings into capital.  A corporation does this conversion when it issues stock dividends or new additional shares from its retained earnings.  It is a way of rewarding stockholders for their stock-holdings.  The accounting process involved is to debit retained earnings and credit the common stock with the bonus dividends.  And the amount for this transaction is calculated with the par value of the stock and not the market value and the number of bonus shares issued.

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