Account For Dividends And Retained Earnings Practice Test

A public, for-profit corporation (Ion Corp.) declared a 30% stock dividend on common stock when the fair value per share was materially greater than par value. Under FASB ASC 505, how should Ion generally measure and record this stock dividend in the financial statements at declaration?

A public, for-profit corporation (Granite Corp.) has a loan covenant that restricts cash dividends unless retained earnings exceed $500,000. At year-end, Granite’s retained earnings are $650,000, but management’s board approves an appropriation of $200,000 of retained earnings for plant expansion, disclosed in the statement of changes in equity. Under FASB ASC 505, what is the effect of the appropriation on Granite’s total retained earnings and its ability to pay dividends (ignoring any other covenant terms)?