Mingenback Company has 560,000 shares of $10 par value common stock outstanding. During the year Mingenback declared a 15% stock dividend when the market price of the stock was $48 per share. Two months later Mingenback declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by:

Question

Quizplus · Accepted Answer

The stock dividend decreases retained earnings by the market value of the shares issued: 560,000 shares * 15% * $48 = $4,032,000. The cash dividend decreases retained earnings by: (560,000 shares + 84,000 new shares) * $0.60 = $386,400. Total decrease = $4,032,000 + $386,400 = $4,418,400.

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