A company with 100,000 authorized shares of $4 par common stock issued 50,000 sh

Question

A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 a share. The effect of the declaration and issuance of the stock dividend is to:

A. decrease retained earnings, increase common stock, and increase paid-in capital

B. increase retained earnings, decrease common stock, and decrease paid-in capital

C. increase retained earnings, decrease common stock, and increase paid-in capital

D. decrease retained earnings, increase common stock, and decrease paid-in capital

PLEASE EXPLAIN IN DETAIL, THANKS IN ADVANCE!

Explanation / Answer

A. decrease retained earnings, increase common stock, and increase paid-in capital.

The effect of the declaration and issuance of the stock dividend is to decrease retained earnings, increase common stock, and increase paid-in capital.

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