A Company Declares a 40% Large Stock Dividend When There

question 136

Multiple Choice

A company declares a 40% large stock dividend when there were 4 million common shares outstanding with a $1 par value.The current market price is $20 per common share.Which of the following will be the effect of the stock dividend?

• A)Retained earnings will decrease by $1.6 million and common stock will increase by $1.6 million.
• B)Retained earnings will decrease by $1.6 million and additional paid-in capital will increase by $1.6 million.
• C)Retained earnings will decrease by $32 million and common stock will increase by $32 million.
• D)Retained earnings will decrease by $32 million,common stock will increase by $1.6 million and additional paid-in capital will increase by $30.4 million.

---

Definitions:

Real Property

Land and anything permanently attached to it, such as buildings and structures.

Permanent Structures

Buildings or constructions meant to be durable and to exist for a long period without significant alteration.

Ownership Interest

The legal right or claim a person has in a property or business, usually expressed as a percentage.

Estate

An interest in land. Property owned by a decedent at the time of his death.