Question

How would the declaration of a 10 percent stock dividend by a corporation affect each of the following on its books?

Answer 1

A 10 percent stock dividend declaration impacts the number of outstanding shares, retained earnings, and potentially the market price per share.

Step-by-step explanation:

When a corporation declares a 10 percent stock dividend, it means that for every ten shares a shareholder owns, they will receive one additional share. This affects the corporation's books in a few ways:

1. The number of outstanding shares increases. For example, if the corporation had 1,000,000 shares before the dividend declaration, it will now have 1,100,000 shares after the dividend.
2. The retained earnings on the balance sheet decrease because the value of the dividend is transferred from retained earnings to the common stock account.
3. The market price per share may decrease as the increased number of shares spreads the total value of the company.

Overall, the declaration of a 10 percent stock dividend impacts the number of outstanding shares, the retained earnings, and potentially the market price per share.