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

question 8

Multiple Choice

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

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Definitions:

Fixed Costs

Costs that do not fluctuate with the volume of production or sales, such as rent, salaries, and insurance premiums.

Variable Costing

An accounting method in which costs that vary directly with production volume (such as materials and labor) are included in product costs, whereas fixed costs are not.

Absorption Costing

A system of accounting that entails adding all expenses incurred in production, including direct materials, direct labor, and both variable and fixed overheads, into the cost calculation of a product.

Product Cost

The total cost of manufacturing or purchasing a product, including raw materials, labor, and overhead expenses.