Davidsons has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of $45 per share.The balance sheet shows $15,000 in the common stock account,$158,000 in the capital in excess of par account,and $132,500 in the retained earnings account.The firm just announced a stock dividend of 50 percent.What is the value of the retained earnings account after the dividend?

Question

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The stock dividend will increase the number of shares outstanding by 50%, from 15,000 to 22,500. The par value of the stock will remain the same, at $1 per share. The market value of the stock will also remain the same, at $45 per share. The total value of the common stock will therefore increase from $15,000 to $22,500. The capital in excess of par account will also increase by 50%, from $158,000 to $237,000. The retained earnings account will decrease by 50%, from $132,500 to $66,250.

Davidsons Has 15,000 Shares of Stock Outstanding with a Par