The Percolator Company has the following capital structure: $\begin{array}{ll}
\text { Common stock ( } \$ 5 \text { par, } 250,000 \text { shares) } & \$ 1,250,000 \
\text { Contributed capital in excess of par } & \$ 5,000,000 \
\text { Retained earnings } & \$ 4,000,000
\end{array}$ ? The company declares a 10% stock dividend. The pre-stock dividend market price of the company's stock is $50. Determine the balance in the retained earnings account after the stock dividend.
A) $4,000,000
B) $1,375,000
C) $2,750,000
D) $1,250,000

Question

Quizplus · Accepted Answer

The balance in the retained earnings account after the stock dividend is calculated by first determining the value of the stock dividend and then subtracting this value from the original retained earnings. A 10% stock dividend on 250,000 shares is 25,000 shares. At a market price of $50 per share, the value of the stock dividend is 25,000 shares * $50 = $1,250,000. Subtracting this from the original retained earnings of $4,000,000 gives $4,000,000 - $1,250,000 = $2,750,000.

The Percolator Company Has the Following Capital Structure ? the Company Declares a 10% Stock Dividend