Question

On January 1, 2021, Bramble Corp., declared a 10% stock dividend on its common stock when the fair value of the common stock was $30 per share. Stockholders' equity before the stock dividend was declared consisted of:

Common stock, $10 par value, authorized 200,000 shares;
issued and outstanding 115000 shares $1150000
Additional paid-in capital on common stock 150000
Retained earnings 700,000
Total stockholders equity $2,050,000
What was the effect on Dodd's retained earnings as a result of the above transaction?
a. $180,000 decrease.
b. $360,000 decrease.
c. $600,000 decrease.
d. $300,000 decrease.

Answer 1

Answer: See explanation

Step-by-step explanation:

The effect on Dodd's retained earnings as a result of the above transaction will be calculated as:

Common stock = 115000

Percent of stock dividend = 10%

Stock dividend = 10% × 115000 = 11500

Price per share = $30

Stock dividend = $30 × 11500 = $345000

Therefore, there'll be a $345000 decrease on Dodd's retained earnings. The options given are incorrect.

Assuming, the common stock was 120,000, then the answer will have been (120,000 × $3) = $360,000 decrease.