On January 1, 2017, Susann, Inc. declared a 15% stock dividend on its common stock when the market value of the common stock was $20 per share. Shareholders' equity before the stock dividend was declared consisted of:
$\begin{array}{lr}
\text { Common stock, } \$ 10 \text { par value, authorized } 40,000 \text { shares; }\
\text { issued and outstanding } 5,000 \text { shares } & \$ 50,000 \
\text { Additional paid-in capital on common stock } & 200,000 \
\text { Retained earnings } &\underline{60,000} \
\text { Total shareholders' equity } &\underline{ \$ 310,000} \
\end{array}$

What happened to retained earnings as a result of the stock dividend declaration?

Question

On January 1, 2017, Susann, Inc. declared a 15% stock dividend on its common stock when the market value of the common stock was $20 per share. Shareholders' equity before the stock dividend was declared consisted of:
$\begin{array}{lr}
\text { Common stock, } \$ 10 \text { par value, authorized } 40,000 \text { shares; }\
\text { issued and outstanding } 5,000 \text { shares } & \$ 50,000 \
\text { Additional paid-in capital on common stock } & 200,000 \
\text { Retained earnings } &\underline{60,000} \
\text { Total shareholders' equity } &\underline{ \$ 310,000} \
\end{array}$

What happened to retained earnings as a result of the stock dividend declaration?

Quizplus · Accepted Answer

The stock dividend declaration resulted in a decrease in retained earnings equal to the market value of the shares distributed as a dividend. The market value of the shares distributed is 5,000 shares x $20 per share = $100,000. Therefore, retained earnings decreased by $100,000.

On January 1, 2017, Susann, Inc What Happened to Retained Earnings as a Result of the Dividend