Fisher Company has 1,000,000 share of common stock with a par value of $10.Additional paid-in capital totals $10,000,000 and retained earnings is $12,000,000.The directors declare a 6% stock dividend when the market value is $5.The reduction of retained earnings as a result of the declaration will be:
A)$0.
B)$300,000.
C)$600,000.
D)$500,000.
E)None of the answers are correct.

Question

Quizplus · Accepted Answer

The reduction in retained earnings for a stock dividend is calculated based on the market value of the shares being distributed. With a 6% stock dividend on 1,000,000 shares, 60,000 shares are distributed. At a market value of $5 per share, the total value is $300,000 (60,000 shares * $5), which is the amount by which retained earnings are reduced.

Fisher Company Has 1,000,000 Share of Common Stock with a Par