Heintz Corp. has just declared a 10% stock dividend. The company's pre-stock dividend common stockholders' equity was as follows: $\begin{array}{ll}
\text { Common stock ( } \$ 0.50 \text { par, } 10,000,000 \text { shares) } & \$ 5,000,000 \
\text { Contributed capital in excess of par } & \$ 48,000,000 \
\text { Retained earnings } & \$ 97,500,000\
\text { Total common stockholders' equity }&\$150,500,000
\end{array}$ ? If the common stock of Heintz was selling at $32 a share prior to the stock dividend, what will the retained earnings be after the stock dividend is distributed?
A) $65,500,000
B) $118,500,000
C) $66,000,000
D) $97,500,000

Question

Quizplus · Accepted Answer

A 10% stock dividend means 1,000,000 new shares (10% of 10,000,000) will be issued. The market value of these shares is $32, so the total value is $32,000,000. This amount is transferred from retained earnings to common stock and additional paid-in capital, reducing retained earnings to $65,500,000 ($97,500,000 - $32,000,000).

Heintz Corp ? If the Common Stock of Heintz Was Selling at Company's