Bruno's has 7,000 shares outstanding with a par value of £1.00 per share and a market value of £12 per share.The statement of financial position shows £7,000 in the ordinary equity account,£58,000 in the additional paid in capital account and £32,500 in the retained earnings account.The firm just announced a 50% (large)stock dividend.What is the value of the retained earnings account after the dividend?

Question

Quizplus · Accepted Answer

A 50% stock dividend means issuing additional shares equal to 50% of the existing shares, which is 3,500 new shares (50% of 7,000). The par value of these shares is £1 each, so £3,500 will be transferred from retained earnings to the ordinary equity account. The new retained earnings will be £32,500 - £3,500 = £29,000.

Bruno's Has 7,000 Shares Outstanding with a Par Value of £1.00