Sheldon, Inc. declared a stock dividend of 50,000 shares on a date when the company's common stock was selling for $21 per share. Prior to this date, Sheldon had 500,000 outstanding shares of $1 par value common stock. As a result of this stock dividend, Sheldon's common stock will ________, the additional paid-in capital will ________, and the retained earnings will ________.

Question

Quizplus · Accepted Answer

The stock dividend increases common stock by the par value of the new shares ($1 x 50,000 = $50,000) and increases additional paid-in capital by the excess of market value over par value ($20 x 50,000 = $1,000,000). Retained earnings decrease by the total market value of the dividend ($21 x 50,000 = $1,050,000).