The directors of Corel Corporation, whose $40 par value common stock is currently selling at $50 per share, have decided to issue a stock dividend. The corporation has an authorization for 200,000 shares of common, has issued 110,000 shares of which 10,000 shares are now held as treasury stock, and desires to capitalize $400,000 of the retained earnings balance. To accomplish this, the percentage of stock dividend that the directors should declare is
A) 10
B) 8
C) 5
D) 2

Question

Quizplus · Accepted Answer

First, we need to calculate the total number of outstanding shares after considering the treasury stock:

110,000 (total issued) - 10,000 (treasury) = 100,000 outstanding shares

Next, we need to calculate the desired increase in the outstanding shares:

$400,000 / $50 per share = 8,000 shares

Finally, we can calculate the percentage of stock dividend that needs to be declared:

8,000 / 100,000 = 0.08 or 8%

Therefore, the answer is B) 8.

The Directors of Corel Corporation, Whose $40 Par Value Common