The Earth Shoe Company, whose stock has a market value of $20, has the following common equity accounts on its balance sheet:
If the firm declares a 5% stock dividend, what will be the retained earnings figure after the dividend is paid?
A) $1,000,000
B) $51,000,000
C) $14,950,000
D) $5,000,000

Question

The Earth Shoe Company, whose stock has a market value of $20, has the following common equity accounts on its balance sheet: 
If the firm declares a 5% stock dividend, what will be the retained earnings figure after the dividend is paid?
A) $1,000,000 
B) $51,000,000 
C) $14,950,000 
D) $5,000,000

Quizplus · Accepted Answer

Solution:
Number new shares = (1,000,000)(0.05) = 50,000
From R.E. = 50,000($20) = $1,000,000
New R.E. = $51,000,000

The Earth Shoe Company, Whose Stock Has a Market Value