Eggers Inc. has retained earnings of $1600000 and total stockholders' equity of $4000000. It has 400000 shares of $5 par value common stock outstanding which is currently selling for $30 per share. If Eggers declares a 10% stock dividend on its common stock:

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A 10% stock dividend means 40,000 new shares (10% of 400,000) will be issued. At the current market price of $30 per share, this results in a $1,200,000 decrease in retained earnings and a corresponding increase in paid-in capital, with no change in total stockholders' equity.