Kate's has 9,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $9 per share. The balance sheet shows $9,000 in the common stock account, $21,000 in the
Capital in excess of par account, and $40,500 in the retained earnings account. The ﬁrm just
Announced a 100 percent (large) stock dividend. By what amount will retained earnings change as a
Result of this dividend?

Question

Quizplus · Accepted Answer

A 100% stock dividend means the company will issue additional shares equal to the number of shares currently outstanding. The par value of the new shares is $9,000 (9,000 shares x $1 par value), which will be transferred from retained earnings to the common stock account, reducing retained earnings by $9,000.

Kate's Has 9,000 Shares of Stock Outstanding with a Par