Atkins Company had 20,000 shares of $5 par value common stock outstanding prior to declaring a 10% common stock dividend.The market value of the common stock on the declaration date was $11.Which of the following statements correctly describes the effect of the common stock dividend?
A)Retained earnings decreased $22,000.
B)Retained earnings decreased $10,000.
C)Total stockholders' equity decreased $22,000.
D)Total stockholders' equity decreased $10,000.

Question

Quizplus · Accepted Answer

BA stock dividend redistributes a portion of retained earnings to common stock and additional paid-in capital but does not change total stockholders' equity. In this case, a 10% stock dividend on 20,000 shares means 2,000 additional shares are issued. The decrease in retained earnings is based on the market value of the shares on the declaration date, which is $11 per share for a total of $22,000 (2,000 shares * $11). Therefore, retained earnings decrease by $22,000, but since this is a redistribution within equity, total stockholders' equity remains unchanged.

Atkins Company Had 20,000 Shares of $5 Par Value Common