Question

Davidson Company has 10,000,000 common shares issued and 400,000 shares of treasury stock. The stock's par value is $2 per share and its current market price is $15 per share. Which of the following is correct when a 15% stock dividend is declared and distributed??
a. Retained earnings will decrease by $4.000 million
b. Retained earnings will decrease only by $3.796 million
c. Retained earnings will decrease by $49.348 million.
d. Retained earnings will decrease by $52.000 million.

Answer 1

Answer: See explanation

Explanation:

Based on the information given in the question, the increase or decrease in the retained earnings will be calculated as:

= (10,000,000 - 400,000) × 15% × $15

= 9,600,000 × 0.15 × 15

= 21,600,000

The retained earnings will decrease by $21.6 million

The options given aren't correct.