Question

On May 1, 2021, Concord Corporation declared and issued a 10% common stock dividend. Prior to this dividend, Concord had 207000 shares of $1 par value common stock issued and outstanding. The fair value of Concord's common stock was $23 per share on May 1, 2021. As a result of this stock dividend, Concord's total stockholders' equity:
A. increased by $476100.
B. decreased by $23000.
C. decreased by $476100.
D. did not change.

Answer 1

Answer:

The correct answer is simply option A.

Explanation:

Total stockholders' equity comprises retained earnings (accumulated net profit or loss over the years minus dividends), common stock and premium.

Common stock dividend is simply dividend paid to the owners of common stock from the retained earnings of the company. This could be in form of cash or dividends.

Before the issue of the common stock dividend, the company's common stock value was 207,000 shares of $1 par value, that is $207,000. 10% common stock dividend at $23 per share on May 1, 2021 translates to 0.1 x 207,000 shares x $23 = $476,100. Since it was common stock dividend, the total stockholders' equity would increase by $476,100. If it was a cash dividend, it would have decreased by $476,100.