Question

Use the following information to answer the next 10 questions:

A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9 per share. Subsequently, the company declared and issued a 10% stock dividend. The market price of the shares is $20 per share.

1. What is the effect of the dividend on Retained Earnings?
   1. Retained earnings decreased
   2. Retained earnings increased
   3. Retained earnings remained the same
   4. None of the above

2. Refer to the previous question. By what amount did Retained Earnings change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

3. What is the effect of the dividend on Common Stock?
   1. Common Stock decreased
   2. Common Stock increased
   3. Common Stock remained the same
   4. None of the above

4. Refer to the previous question. By what amount did Common Stock change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

5. What is the effect of the dividend on Paid-in Capital?
   1. Paid-in Capital decreased
   2. Paid-in Capital increased
   3. Paid-in Capital remained the same
   4. None of the above

6. Refer to the previous question. By what amount did Paid-in Capital change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

7. What is the effect of the dividend on the number of shares outstanding?
   1. The number decreased
   2. The number increased
   3. The number remained the same
   4. None of the above

8. Refer to the previous question. By what amount did the number of shares outstanding change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

9. What is the effect of the dividend on total equity and total assets?
   1. Total equity decreased and total assets decreased
   2. Total equity decreased and total assets increased
   3. Total equity increased and total assets decreased
   4. Total equity increased and total assets increased
   5. None of the above

10. Refer to the previous question. By what amount did total equity and total assets change, if at all? (If the account balance or amount did not change, state your answer as “$0.”)

Answer 1

• Following Working will help in all the questions asked by you.

A	No. of shares outstanding prior to Stock Dividend	50,000
B	Stock Dividend rate	10%
C = A x B	No. of shares as Stock Dividend	5,000
D	Market price	$                               20
E = C x D	Amount of Stock Dividend	$                    100,000

• What is the effect of the dividend on Retained Earnings?

Option ‘a’ Retained Earnings Decreased by the amount of Stock Dividend

• By what amount did Retained Earnings change? Answer = $ 100,000
• What is the effect of the dividend on Common Stock?

Option ‘b’ Common Stock increased, as new shares are issued.

• B y what amount did Common Stock change?

Answer = 5000 shares x $ 4 par = $ 20,000

• What is the effect of the dividend on Paid-in Capital?

Option ‘B’ paid in Capital Increased.

• By what amount did Paid-in Capital change?

Answer = $ 100,000 – 20000 = $ 80,000

• What is the effect of the dividend on the number of shares outstanding?

Option ‘B’ No. of shares Increased.

• By what amount did the number of shares outstanding change?

Answer = 5000 shares

• What is the effect of the dividend on total equity and total assets?

Option ‘E’ None of the Above.

• By what amount did total equity and total assets change?

Answer = $ 0