MacDowell Corp.has 100,000 shares outstanding with a par value of $2.On March 3,it declared a 100% stock dividend,when its stock price was $15.As a result of this stock dividend,retained earnings:
A)decreased by $1,500,000.
B)decreased by $200,000.
C)increased by $1,500,000.
D)increased by $100,000.

Question

Quizplus · Accepted Answer

MacDowell Corp.declared a "large stock dividend" (one that is greater than 20% to 25% of the outstanding stock).Accordingly,it must reduce its Retained Earnings account by $200,000 [or the number of shares subject to the dividend of 100,000 shares (or 100,000 outstanding shares × stock dividend of 100%)multiplied by the par market value of the stock of $2].