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17 March, 14:52

A company originally issued 50,000 shares of $5 common stock at $9. The board of directors declares a 10 % stock dividend when the market price of the stock is $10 a share. Which of the following is included in the entry to record the stock dividend?

A) Retained earnings is decreased, common stock is increased, and paid-in capital is decreased.

B) Retained earnings is increased, common stock is increased, and paid-in capital is increased.

C) Retained earnings is decreased, common stock is decreased, and paid-in capital is increased.

D) Retained earnings is decreased, common stock is increased, and paid-in capital is increased.

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Answers (1)
  1. 17 March, 18:51
    0
    D) Retained earnings is decreased, common stock is increased, and paid-in capital is increased.

    Explanation:

    The Transaction transfer the dividend amount from retained earning to common stock and Add-in-capital account. The value transferred will decrease the retained earning. Amount up to the par value of the share will be added to the common stock account and it will be increased. The amount over the par value will be added to add-in-capital account it will also increase. So the correct option is D) Retained earnings is decreased, common stock is increased, and paid-in capital is increased.
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