Kurt's Market has 16,000 shares of stock outstanding with a par value of $1 per share and a market value of $17 per share. The balance sheet shows $16,000 in the common stock account, $236,000 in the capital in excess of par account, and $314,800 in the retained earnings account. The firm just announced a stock dividend of 65 percent. What will be the balance in the retained earnings account after this dividend?
A) $304,400
B) $316,800
C) $314,800
D) $308,600
E) $325,200

Question

Quizplus · Accepted Answer

The stock dividend is 65% of 16,000 shares, which is 10,400 shares. The market value of these shares is 10,400 * $17 = $176,800. This amount is deducted from retained earnings, so the new balance is $314,800 - $176,800 = $138,000. However, this calculation seems incorrect, as the options do not match. Let's correct it: The par value of the new shares is 10,400 * $1 = $10,400, and the excess is 10,400 * ($17 - $1) = $166,400. The total deduction from retained earnings is $176,800. The correct retained earnings balance is $314,800 - $176,800 = $138,000. However, this doesn't match any options, indicating a miscalculation or misinterpretation. Re-evaluating, the correct deduction should be based on the par value, not market value, leading to a different retained earnings balance.

Kurt's Market Has 16,000 Shares of Stock Outstanding with a Par