Kate's has 9,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $9 per share. The balance sheet shows $9,000 in the common stock account, $21,000 in the capital in excess of par account, and $40,500 in the retained earnings account. The firm just announced a 100 percent (large) stock dividend. By what amount will retained earnings change as a result of this dividend?

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A 100 percent stock dividend means the company will issue one share for every share currently held, doubling the number of shares to 18,000. The par value of each share is $1.00, so the total par value of the new shares issued is $9,000 (9,000 shares * $1.00). This amount is transferred from retained earnings to the common stock account, decreasing retained earnings by $9,000.

Kate's Has 9,000 Shares of Stock Outstanding with a Par