Katie Company had 40,000 shares of $2 par value common stock outstanding prior to a 40% common stock dividend declaration and distribution.The market value of the common stock on the declaration date was $10.Which of the following statements incorrectly describes the affect of the common stock dividend and declaration?
A)Retained earnings decreased $32,000.
B)Capital in excess of par remained the same.
C)Contributed capital increased $128,000.
D)Total stockholders' equity remained the same.

Question

Quizplus · Accepted Answer

Large stock dividends are recorded at par value. Therefore, contributed capital would increase by $32,000 (40,000 F1F1F1S1F1F1F10 .40 F1F1F1S1F1F1F10 $2).

Katie Company Had 40,000 Shares of $2 Par Value Common