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14 August, 18:21

Ducheyne Electric recently declared a 15 percent stock dividend. On the date of the stock dividend Ducheyne had 16 million shares outstanding priced at $46 per share in the market. An accounting entry was required on the balance sheet transferring some retained earnings to the common stock account. If retained earnings was $280 million prior to the transaction, what was the dollar amount of retained earnings after the transfer?

a. $280.0 million

b. $110.4 million

c. $234.0 million

d. $277.6 million

e. $169.6 million

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  1. 14 August, 20:03
    0
    correct option is e. $169.6 million

    Explanation:

    given data

    Stock dividend issued = 15%

    outstanding shares = 16,000,000

    Market price = $46 per share

    Retained earnings = $280,000,000

    solution

    first we get here stock dividend that is 15% of Outstanding shares

    stock dividend = 0.15 * 16,000,000

    stock dividend = 2,400,000

    and

    as here stock dividend issue is less than 20 to 25% that is classified small stock dividend

    so Amount that transferred from retain earning to Common stock is here

    transferred amount = stock dividend * Market value per share

    transferred amount = 2,400,000 * $46

    transferred amount = $110,400,000

    and

    As issue of stock dividend changes balances of some accounts not the total stockholder equity

    so amount of retained earnings after the transfer will be as

    Retained earnings balance = $280,000,000 - $110,400,000

    Retained earnings balance = $169,600,000

    so correct option is e. $169.6 million
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