Hernandez Company has 560,000 shares of $10 par value common stock outstanding. During the year, Hernandez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by

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The stock dividend decreases retained earnings by the market value of the shares issued: 560,000 shares * 10% * $30 = $1,680,000. The cash dividend decreases retained earnings by: (560,000 shares + 56,000 new shares) * $0.50 = $308,000. Total decrease: $1,680,000 + $308,000 = $1,988,000.

Hernandez Company Has 560,000 Shares of $10 Par Value Common