Mr. R. owns 20,000 shares of ABC Corporation stock. The company is planning to issue a stock dividend. Before the dividend Mr. R. owned 10 percent of the outstanding stock, which had a market value of $200,000, or $10 per share. Upon receiving the 10 percent stock dividend the value of his shares is ________.
A) $220,000
B) $210,000
C) $200,000
D) $180,000

Question

Quizplus · Accepted Answer

A 10 percent stock dividend means Mr. R. receives additional shares equal to 10 percent of his current holdings, so he now owns 22,000 shares (20,000 + 2,000). However, the total value of the company in the market does not change just because of a stock dividend. The value of his holdings remains $200,000, but it is now spread over more shares.

Mr R Owns 20,000 Shares of ABC Corporation Stock