Question

Davidsons has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of $45 per share. The balance sheet shows $15,000 in the common stock account, $158,000 in the capital in excess of par account, and $132,500 in the retained earnings account. The firm just announced a stock dividend of 50 percent. What is the value of the retained earnings account after the dividend

Answer 1

Answer: -$205,000

Step-by-step explanation:

Retained earnings balance = Retained earnings amount - Dividends declared

Dividends declared = Percent dividend * Number of shares * Market value

= 50% * 15,000 * 45

= $337,500

Retained earnings balance after dividend:

= 132,500 - 337,500

= -$205,000