Question

On October 1, 2021, Chief Corporation declared and issued a 10% stock dividend. Before this date, Chief had 80,000 shares of $5 par common stock outstanding. The market price of Chief Corporation on the date of declaration was $10 per share. As a result of this dividend, Chief's retained earnings will: Multiple Choice Not change. Decrease by $80,000. Decrease by $40,000. Increase by $80,000.

Answer 1

Decrease by $40,000

Step-by-step explanation:

The correct answer is Chief's retained earnings will Decrease by $80,000. The dividends distribution is made out of the business profits and these are accumulated in a reserve called retained earnings.

Dividends Calculation = 80,000 shares x $5 x 10% = $40,000