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XYZ Co has 7,500 shares of stock outstanding with a par value of $1.00 per share...

XYZ Co has 7,500 shares of stock outstanding with a par value of $1.00 per share and a market value of $2.5 per share. The balance sheet shows $22,000 in the common stock account, and $82,500 in the retained earnings account. The firm just announced a 80 percent stock dividend. By what amount will retained earnings go down as a result of this dividend?

a

$0

b

$15,000

c

$18,750

d

$21,520

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Homework Answers

Answer #1

Total number of shares outstanding = 7,500 shares

Stock dividend = 80%

Number of shares of stock dividend = 7,500 shares * 80% = 6000 shares

Market value of each share = $2.50

Total market value of stock dividend = 6000 shares * $2.50 = $15,000

Journal entry will be

Debit Retained earnings account..... $15,000

Credit Common stock dividend distributable ..$6,000

Credit Additional paid in capital-common stock $9,000

So, Retained earnings will go down by $15,000

Option 'b' $15,000 is correct

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