The Earth Shoe Company, whose stock has a market value of $20, has the following common equity accounts on its balance sheet: $\begin{array}{lr}
\text { Common stock ( $ \$ 1 $ par, $ 1,000,000 $ shares)}&\$ 1,000,000\
\text {Paid in excess }&\$ 14,000,000\
\text { Retained earnings}&\$ 52,000,000\
\text {Total Common stockholders' equity }&\$ 67,000,000\
\end{array}$
If the firm declares a 5% stock dividend, what will be the retained earnings figure after the dividend is paid?

Question

The Earth Shoe Company, whose stock has a market value of $20, has the following common equity accounts on its balance sheet: $\begin{array}{lr}
\text { Common stock ( $ \$ 1 $ par, $ 1,000,000 $ shares)}&\$ 1,000,000\
\text {Paid in excess }&\$ 14,000,000\
\text { Retained earnings}&\$ 52,000,000\
\text {Total Common stockholders' equity }&\$ 67,000,000\
\end{array}$
 If the firm declares a 5% stock dividend, what will be the retained earnings figure after the dividend is paid?

Quizplus · Accepted Answer

A 5% stock dividend on 1,000,000 shares means 50,000 new shares will be issued. The market value of these shares is $20 each, totaling $1,000,000. This amount is deducted from retained earnings, reducing it from $52,000,000 to $51,000,000.

The Earth Shoe Company, Whose Stock Has a Market Value