Question

Use the following information to answer the next 10 questions:

A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9 per share. Subsequently, the company declared and issued a 10% stock dividend. The market price of the shares is $20 per share.

49. What is the effect of the dividend on Reatined Earnings?

a. Retained earnings decreased

b. Retained earnings increased

c. Retained earnings remained the same

d. None of the above

50. Refer to the previous. By what amount did Retained Earning change, if at all? (If the account balance or amount did not change, state your answer as "$0")

51. What is the effect of the dividend on Common Stock?

a. Common Stock decreased

b. Common Stock increased

c. Common Stock remained the same

d. None of the above

52. Refer to the previous question. By what amount did Common Stock change, if at all? ( If the account balance or amount did not change, state your answer as "$0")

53. What is the effect of the dividend on Paid in Capital?   

a. Paid-in Capital decreased

b. Paid-in Capital increased

c. Paid-in Capital remained the same

d. None of the above

54. Refer to the previous question. By what amount did Paid in Capital change, if at all? ( If the account balance or amount did not change, state your answer as "$0")

55. What is the effect of the dividend on the number of shares outstanding?

a. The number decreased

b. The number increased

c. The number remained the same

d. None of the above

56. Refer to the previous question. By what amount did the number of shares change, if at all? (If the account or amount did not change, state your answer as "$0")

57. What is the effect of the dividend on total equity and total assets?

a. Total equity decreased, and total assets decreased

b. Total equity decreased, and total assets increased

c. Total equity increased, and total assets decreased

d. Total equity increased, and total assets increased

e. None of the above

58. Refer to the previous question. By what amount did total equity change if at all? ( If the account balance or amount did not change, state your answer as "0")

Answer 1

49. A - Retained earnig decreased

Explanation :

Retained earning is a part of equity in the balance sheet. At a time of declaration of dividend the same is reduced and a liability aganist the same "Dividend payable" is created.

50. Retained earning will decreased by $ 20,000. Dividend is always paid on the par value of the paid up share capital of the company. So, 50000*4*10% =20,000 is the amount of dividend payable. Which will be reduced from retained earning.

51. C. Common stock remains the same. Common stock is ordinary shares of the company. They are not affected by the declaration of dividend because it is declared out of retained earnings.

52.. 0. Since common stock remains the same, it wll not have any effect.