A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 a share. The effect of the declaration and issuance of the stock dividend is to
A) decrease retained earnings, increase common stock, and increase paid-in capital
B) increase retained earnings, decrease common stock, and decrease paid-in capital
C) increase retained earnings, decrease common stock, and increase paid-in capital
D) decrease retained earnings, increase common stock, and decrease paid-in capital

Question

Quizplus · Accepted Answer

The declaration of a stock dividend decreases retained earnings and increases common stock and paid-in capital. The stock dividend is recorded at the market price, which increases the common stock account by the par value of the new shares and the paid-in capital by the excess of market price over par value.

A Company with 100,000 Authorized Shares of $4 Par Common