Murphy's has 10,000 shares outstanding with a par value of £1.00 per share.The market value is £8 per share.The statement of financial position shows £32,500 in the additional paid in capital account,£10,000 in the ordinary equity account,and £42,700 in the retained earnings account.The firm just announced a 10% (small)stock dividend.What will the balance in the retained earnings account be after the dividend?

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Quizplus · Accepted Answer

The correct answer is A because the retained earnings account will be reduced by the amount of the dividend, which is 10% of the market value of the shares outstanding. This is calculated as follows:Dividend = 10% x £8 per share x 10,000 shares = £8,000Retained earnings after dividend = £42,700 - £8,000 = £34,700

Murphy's Has 10,000 Shares Outstanding with a Par Value of £1.00