King Corp.has one million shares outstanding with a par value of $5.On August 24 of this year,it issued a 10% stock dividend when its stock price was $25.As a result of this stock dividend,retained earnings:
A)increased by $500,000.
B)increased by $2,500,000.
C)decreased by $500,000.
D)decreased by $2,500,000.

Question

Quizplus · Accepted Answer

King Corp.declared a "small stock dividend" (one that is less than 20% to 25% of the outstanding stock).Accordingly,it must reduce its Retained Earnings account by $2,500,000 [or the number of shares subject to the dividend of 100,000 (or 1,000,000 outstanding shares × stock dividend of 10%)multiplied by the fair market value of the stock of $25].

King Corphas One Million Shares Outstanding with a Par Value of of $5.On