On January 1, 2016, Bohannon, Inc., declared a 10% stock dividend on its common
ID: 2486845 • Letter: O
Question
On January 1, 2016, Bohannon, Inc., declared a 10% stock dividend on its common stock when the market value of the common stock was $20 per share. Stockholders' equity before the stock dividend was declared consisted of:
Common stock, $10 par value, authorized 200,000 shares; issued and outstanding 120,000 shares $1,200,000
Additional paid-in capital on common stock 150,000
Retained earnings 700,000
Total stockholders' equity $2,050,000
What was the effect on Bohannon’s retained earnings as a result of the above transaction?
Explanation / Answer
Decrease in retained earnings would be the amount paid as dividend
= 0.10*$20*120000
Note :- Dividend is paid on paid up value and on number of shares issued and paid.
$2,40,000
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