XY Company had the following shareholder equity: Common shares outstanding, 10,000; average issue price, $115; current market price, $140.Shares sold on a stock subscription basis are not issued until the subscription price is collected in full.Recording a declaration of a 10 percent stock dividend in conformity with generally accepted accounting principles would change retained earnings:
A)On the basis of an arbitrary value of shares.
B)By 10 percent of its balance before the dividend.
C)On the basis of the market value of shares.
D)On the basis of the average paid-in value of shares.

Question

Quizplus · Accepted Answer

Recording a declaration of a 10 percent stock dividend in conformity with generally accepted accounting principles (GAAP) would change retained earnings on the basis of the market value of shares at the time of the dividend declaration.

XY Company Had the Following Shareholder Equity: Common Shares Outstanding