A corporation reported net income of $60,000, declared and paid cash dividends of $80,000, and issued 3,000 shares of $2 par common stock at $15 per share during the year. What total effects would these transactions have on the following stockholders' equity accounts? Retained Earnings Common Stock

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Quizplus · Accepted Answer

The net income of $60,000 would increase Retained Earnings, and the issuance of 3,000 shares of $2 par common stock at $15 per share would increase Common Stock by $45,000 ($15 x 3,000), for a total increase of $105,000 ($60,000 - $80,000 + $45,000). The payment of dividends of $80,000 would decrease Retained Earnings by that amount, and since the payment exceeds the net income for the year, Retained Earnings would have a net decrease for the year. Therefore, Retained Earnings would decrease and Common Stock would increase, resulting in a decrease in one account and an increase in the other account. Thus, choice D is correct.

A Corporation Reported Net Income of $60,000, Declared and Paid