A company with 100,000 authorized shares of $4 par common stock issued 50,000 shares at $9. Subsequently, the company declared a 2% stock dividend on a date when the market price was $10 a share. The effect of the declaration and issuance of the stock dividend is to

A) decrease retained earnings, increase common stock, and increase paid-in capital
B) increase retained earnings, decrease common stock, and decrease paid-in capital
C) increase retained earnings, decrease common stock, and increase paid-in capital
D) decrease retained earnings, increase common stock, and decrease paid-in capital

Question

Zybrea Knight · Accepted Answer

Final Answer : A, Explanation :  Declaring a stock dividend decreases retained earnings by the market value of the shares issued, increases common stock by the par value of the new shares, and increases paid-in capital by the difference between the market value and the par value of the new shares.

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