Heintz Corp. has just declared a 10% stock dividend. The company's pre-stock dividend common stockholders' equity was as follows $\begin{array}{lr}
\text { Common stock ( } \$ .50 \text { par, } 10,000,000 \text { shares) } & \$ 5,000,000 \
\text { Paid in excess } & 48,000,000 \
\text { Retained earnings } & 97,500,000 \
\text { Total common stockholders' equity } & \$ 150,500,000
\end{array}$ If the common stock of Heintz was selling at $32 a share prior to the stock dividend, what will the retained earnings be after the stock dividend is distributed?

Question

Heintz Corp. has just declared a 10% stock dividend. The company's pre-stock dividend common stockholders' equity was as follows $\begin{array}{lr}
\text { Common stock ( } \$ .50 \text { par, } 10,000,000 \text { shares) } & \$ 5,000,000 \
\text { Paid in excess } & 48,000,000 \
\text { Retained earnings } & 97,500,000 \
 \text { Total common stockholders' equity } & \$ 150,500,000
\end{array}$ If the common stock of Heintz was selling at $32 a share prior to the stock dividend, what will the retained earnings be after the stock dividend is distributed?

Quizplus · Accepted Answer

The stock dividend will reduce retained earnings by the market value of the additional shares issued. 10% of 10,000,000 shares is 1,000,000 shares. At $32 per share, the reduction in retained earnings is $32,000,000. Thus, the new retained earnings will be $97,500,000 - $32,000,000 = $65,500,000.

Heintz Corp If the Common Stock of Heintz Was Selling at $32