The Percolator Company has the following capital structure:

The company declares a 10 percent stock dividend. The pre-stock dividend market price of the company's stock is $50.
-Determine the balance in the retained earnings account after the stock dividend.
A) $4,000,000
B) $1,375,000
C) $2,750,000
D) $1,250,000

Question

The Percolator Company has the following capital structure:
  
The company declares a 10 percent stock dividend. The pre-stock dividend market price of the company's stock is $50.
-Determine the balance in the retained earnings account after the stock dividend.
A) $4,000,000 
B) $1,375,000 
C) $2,750,000 
D) $1,250,000

Quizplus · Accepted Answer

Solution:
New shares = 0.10 (250,000) = 25,000
Amount transferred from R/E = 25,000($50) = $1,250,000
New R/E balance = $4,000,000 - $1,250,000 = $2,750,000

The Percolator Company Has the Following Capital Structure