Randall's, Inc. has 20,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $12 per share. The balance sheet shows $42,000 in the capital in excess of par
Account, $20,000 in the common stock account and $50,500 in the retained earnings account. The
ﬁrm just announced a 5 percent (small) stock dividend. What will the balance in the retained
Earnings account be after the dividend?

Question

Quizplus · Accepted Answer

The stock dividend will reduce retained earnings by the market value of the shares issued as a dividend. The market value of the shares issued is 20,000 shares x $12 per share = $240,000. Therefore, the balance in the retained earnings account after the dividend will be $50,500 - $240,000 = $38,500.