Randall's has 34,000 shares of stock outstanding with a par value of $1 per share. The market value is $23 per share. The balance sheet shows $152,000 in the capital in excess of par account, $34,000 in the common stock account, and $67,500 in the retained earnings account. The firm just announced a 5 percent (small) stock dividend. What will be the balance in the retained earnings account after the dividend?
A) $28,400
B) $29,500
C) $30,500
D) $27,800
E) $32,500

Question

Quizplus · Accepted Answer

The correct answer is A.The stock dividend will reduce the retained earnings account by the market value of the new shares issued. The market value of the new shares is 5% of the current market value of the outstanding shares, or 5% x $23 x 34,000 = $37,700. Therefore, the balance in the retained earnings account after the dividend will be $67,500 - $37,700 = $29,800.

Randall's Has 34,000 Shares of Stock Outstanding with a Par