Murphy's has 10,000 shares outstanding with a par value of £1.00 per share.The market value is £8 per share.The statement of ﬁnancial position shows £32,500 in the additional paid in capital
Account, £10,000 in the ordinary equity account, and £42,700 in the retained earnings account.The
ﬁrm just announced a 10% (small) stock dividend.What will the balance in the retained earnings
Account be after the dividend?

Question

Quizplus · Accepted Answer

The balance in the retained earnings account after the dividend will be £34,700. This is calculated by first determining the amount of the stock dividend: 10,000 shares * 10% = 1,000 shares. The value of these shares at market price is 1,000 shares * £8 = £8,000. Since it's a small stock dividend, the value is deducted from retained earnings, making the new balance £42,700 - £8,000 = £34,700.

Murphy's Has 10,000 Shares Outstanding with a Par Value of £1.00