Question

Fisher Company has 1,000,000 share of common stock with a par value of $10. Additional paid-in capital totals $10,000,000 and retained earnings is $12,000,000. The directors declare a 6% stock dividend when the market value is $5. The reduction of retained earnings as a result of the declaration will be:
A. $0.
B. $300,000
C. $600,000
D. $500,000.
E. None of the answers are correct.

Answer 1

Answer:

B. $300,000

Explanation:

The computation of the reduction of retained earning amount is shown below:

= Number of shares of common stock × stock dividend percentage × market value

= 1,000,000 shares × 6% × $5

= $300,000

Since the dividend amount is adjusted while computing the ending balance of retained earning balance and the same is to be considered in the computation part.

All other information which is given is not relevant. Hence, ignored it