Question

Ray Corp. declared a 5% stock dividend on its 10,000 issued and outstanding shares of $2 par value common stock, which had a fair value of $5 per share before the stock dividend was declared. This stock dividend was distributed 60 days after the declaration date. By what amount did Ray's current liabilities increase as a result of the stock dividend declaration?

Answer 1

Answer: The answer is as follows:

Step-by-step explanation:

We know that dividend is not a part of assets and liabilities. Stockholder's equity section includes the all types of dividend that would be divided among the share holders. Therefore, declaration of dividend is not a part of liabilities and hence, involved in the Stockholder's equity section.

∴ There will be no increase in the Ray's current liabilities as a result of the stock dividend declaration.