Question

A corporation declared and issued a 15% stock dividend on November 1. Prior to the dividend, the balance in retained earnings was $850,000, the number of shares of $5 par value stock issued and outstanding was 60,000, and the market value of the stock was $12. The amount of the change in total stockholders' equity as a result of recording this stock dividend is:

A. $0
B. $45,000 increase
C. $108,000 decrease
D. $63,000 decrease
E. $45,000 decrease

Answer 1

The change in total stockholders' equity as a result of recording a 15% stock dividend is $108,000 decrease

Step-by-step explanation:

To calculate the change in total stockholders' equity as a result of recording a stock dividend, we need to find the value of the dividend and the corresponding increase in the number of shares.

First, we calculate the value of the stock dividend by multiplying the market value of the stock ($12) by the number of shares outstanding (60,000) and the dividend rate (15%).

$12 x 60,000 x 0.15 = $108,000

Next, we calculate the increase in the number of shares. Since it is a 15% stock dividend, the number of new shares is calculated by multiplying the current number of shares by the dividend rate.

60,000 x 0.15 = 9,000

The change in total stockholders' equity is equal to the value of the stock dividend minus the increase in retained earnings.

$108,000 - $0 = $108,000

Therefore, the correct answer is C. $108,000 decrease.