Question

On October 1, 2021, Chief Corporation declared and issued a 10% stock dividend. Before this date, Chief had 80,000 shares of $5 par common stock outstanding. The market price of Chief Corporation on the date of declaration was $10 per share. As a result of this dividend, Chief's retained earnings will:

Answer 1

Answer:

Decrease by $80,000

Explanation:

The journal entries are shown below;

Retained earning Dr $80,000              (8,000 shares × $10)

      To Common stock $40,000                         (8,000 shares × $5)

      To Paid in capital in excess of par $40,000                    (8,000 shares × $5)

(Being the retained earning is recorded)

So by passing this journal entry we get to know that the retained earning will decreases by $80,000