Atkins Company had 20,000 shares of $5 par value common stock outstanding prior to a 10% common stock dividend declaration and distribution. 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 and declaration?
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

The stock dividend is recorded at market value, so 2,000 shares (10% of 20,000) at $11 per share results in a $22,000 decrease in retained earnings. Total stockholders' equity remains unchanged as the decrease in retained earnings is offset by an increase in common stock and additional paid-in capital.

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