Dare Co. declared at 50% stock dividend on April 18 to be distributed on May 31.

Question

Dare Co. declared at 50% stock dividend on April 18 to be distributed on May 31. The market price of the stock was $35 on May 31. The par value of the stock is $10 per share. Dare had 100,000 shares outstanding before the stock dividend. Which of the following is true about the effect of this dividend on the April 30 financial statements?

Retained earnings decreases $500,000.

Common Stock increases $500,000.

Total Stockholders' equity decreases by $1,750,000.

Stock dividends distributable increases by $1,750,000.

Explanation / Answer

The effect is

Retained earnings decreases $500,000.and

Common Stock increases $500,000.

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