Question

DuBois, Inc. announces a large stock dividend of 65% of the 4.96 million outstanding shares of common stock. The current price per share is $13.85. Par value of the stock is $0.01 per share. What effect does this dividend have on retained earnings?
A. $49,600 decrease
B. $32,240 decrease
C. $44,652,000 decrease
D. $11,591,288 decrease
E. None of the above

Answer 1

Answer:

Option (B) is correct.

Explanation:

Dividend per share:

= (65% of Par value of the stock)

= (65% × 0.01)

= $0.0065

Hence, the total dividend:

= (Dividend per share × outstanding shares of common stock)

= (0.0065 × 4.96 million)

= $32,240

Hence, the dividend would cause a decrease in retained earnings.

Therefore, the correct option is B.