The format displayed is used by Gee, Inc., for its Year 4 statement of changes in equity. When both the 100% and the 5% stock dividends were declared and distributed, Gee’s common stock was selling for more than its $1 par value.

Common Additional
Stock Paid-In Retained
$1 par Capital Earnings

Balance at 1/1/Year 4$90,000 $800,000 $175,000
Additions and deductions:
100% stock dividend
5% stock dividend
Balance at 12/31/Year 4

How would the 5% stock dividend affect the additional paid-in capital and retained earnings amounts reported in Gee’s Year 4 statement of equity?

If company issued stock dividend then

company's retained earnings will decrease by stock dividend's market value and company's additional paid in capital will increase.

in this question 5% stock dividend declared

answer is

Additional paid in capitalRetained earnings

cIncrease                             Decrease

Additional paid in capital (No change)

Retained earnings (Decreased)

Explanation:

Additional paid in capital (No change)

Retained earnings (Decreased)

A 100% stock dividend is a "large" stock dividend because it exceeds 20% - 25%. Large stock dividends are often capitalized at par value and Retained earnings is reduced by the par value of the shares issued, while common stock is increased by the par value of stock issued.

Therefore there is no effect on additional paid-in capital because the entire decrease in retained earnings is recorded in common stock. A large stock dividend permanently capitalizes the par value of the issued shares into common stock.

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