Question

On January 1, 2021, Doyle Corporation had 140,000 shares of its $5 par value common stock outstanding. On December 1, when the market price of the stock was $15, the corporation declared a 40% stock dividend to be issued to stockholders of record on December 16, 2021. What was the impact of the 40% stock dividend on the balance of the retained earnings account

Answer 1

Answer: Retained earnings would reduce by the $840,000 dividend.

Step-by-step explanation:

Stock dividends to the shareholders is to be paid from the retained earnings of the company as it represents profits that the shareholders get because they are owners in the company.

Retained earnings spent = Number of shares * Market price * Stock dividend

= 140,000 * 15 * 40%

= $840,000

Retained earnings would reduce by the $840,000 dividend.