Bruno's has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $12 per share.The balance sheet shows $7,000 in the common stock account, $58,000 in the capital in excess of par 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. This results in 3,500 new shares (50% of 7,000). The par value of these shares is $3,500 (3,500 shares x $1 par value). This amount is transferred from retained earnings to the common stock account, reducing retained earnings from $32,500 to $29,000.

Bruno's Has 7,000 Shares of Stock Outstanding with a Par