Tom Company which uses a perpetual inventory system has the

Tom Company (which uses a perpetual inventory system) has the following account balances after adjusting entries at December 31, 2012: $227,000 ash Merchandise Inventory (12/31/2012) Equipment 100 120 105 350 880 unts Receivable Common Stock ($.50 par) Rent Expense Bonds Payable (due 2040) 67,000 120 ounts Payable Dividends Treasury Stock, Common (19,000 shares) Preferred Stock 6% ($10 par) 27,000 10,00 47,00 85,00 260 Paid-in Capital in Excess of Par Value, Preferred Cost of Goods Sold Interest Expense 8,000 720 20,000 23,000 56,000 5,000 95,00 30,000 nearned Revenue Paid-in Capital from Treasury Stock Transactions, Common llowance for Doubtful Accounts Operating Expenses umulated Depreciation- Equipment Paid-in Capital in Excess of Par Value, Common Retained Earnings (1/1/2012) 70,00 If Tom were to declare and distribute a 2% stock dividend to shareholders on January 1, 2013 at a time where the market price of common stock was $2 per share, the amount of retained capitalized would be $27,120. O $14,000. O $28,000. O $7,000. None of the above

Solution

Correct answer is option C.$28000

Calculation of Amount retained earnings to be capitalized

Total no.of common stock=350,000/.50= 7,00,000 stocks

Total value of all stocks now = 7,00,000*2=$14,00,000

So amounts to be capitalized =$14,00,000* 2% =$28,000