A company declares a 40% large stock dividend when there were 4 million common shares outstanding with a $1 par value.The current market price is $20 per common share.Which of the following will be the effect of the stock dividend?
A)Retained earnings will decrease by $1.6 million and common stock will increase by $1.6 million.
B)Retained earnings will decrease by $1.6 million and additional paid-in capital will increase by $1.6 million.
C)Retained earnings will decrease by $32 million and common stock will increase by $32 million.
D)Retained earnings will decrease by $32 million,common stock will increase by $1.6 million and additional paid-in capital will increase by $30.4 million.

Question

Quizplus · Accepted Answer

A stock dividend redistributes retained earnings to common stock. In this case, 40% of 4 million shares is 1.6 million new shares, each with a $1 par value, thus moving $1.6 million from retained earnings to common stock.

A Company Declares a 40% Large Stock Dividend When There