A company originally issued 50,000 shares of $5 par common stock at $9. The board of directors declares a 40% stock dividend when the market price of the stock is $10 a share. Which of the following shows the effect of the stock dividend?

Question

Quizplus · Accepted Answer

When a company declares a stock dividend, it issues additional shares to current shareholders. This action decreases retained earnings by the market value of the shares issued, increases common stock by the par value of the new shares, and increases paid-in capital for the excess of the market value over the par value of the new shares.

A Company Originally Issued 50,000 Shares of $5 Par Common