Question

On January 1, 2014, Vancleave Corporation had 110,000 shares of its $.001 par value common stock outstanding. On November 27, when the market price of the stock was $8, the corporation declared a 10% stock dividend to be issued to stockholders of record on December 28, 2014. What was the impact of the 10% stock dividend on the balance of the retained earnings account?

Answer 1

A 10% stock dividend decreases the balance of the retained earnings account and increases the balance of the common stock account.

Step-by-step explanation:

The impact of a 10% stock dividend on the balance of the retained earnings account is that it decreases the balance by the value of the dividend distributed. In this case, Vancleave Corporation had 110,000 shares of common stock outstanding, and a 10% stock dividend was declared. This means that 11,000 additional shares were issued to stockholders. Since a stock dividend is a noncash transaction, the par value of the additional shares is transferred from the retained earnings account to the common stock account.

Let's calculate the impact:

The total par value of the additional shares is $11,000 (11,000 shares multiplied by $0.001 par value).

1. The retained earnings account decreases by $11,000.
2. The common stock account increases by $11,000.