Stuck on this....please help. Ducheyne Electric recently declared a 15 percent s
ID: 2670472 • Letter: S
Question
Stuck on this....please help.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?
$280.0 million
$110.4 million
$234.0 million
$277.6 million
$169.6 million
Thank You in advance!
Explanation / Answer
According to the given information,
Number of outstanding shares = 16,000,000
Stock dividend issued = 15%
Market price per share = $46
Retained earnings before the stock dividend issued = $280,000,000
We know that the issuance of stock dividend will increase the number of outstanding shares.
Stock dividend = 15% (Outstanding shares)
= 15% (16,000,000)
= 2,400,000
Therefore, the additional shares issued with stock dividend are 2,400,000
Here the stock dividend issued is less than 20-25% which is classified as small stock dividend.
If the stock dividend is small, then the amount that must be transferred from retained earnings to common stock account should be based on the market value per share.
Amount that must be transferred from retained earnings to Common stock account is
Transferred amount = Number of additional shares * Market value per share
= 2,400,000 * $46
= $110,400,000
Therefore, the amount that must be transferred from retained earnings to common stock account is $110,400,000.
Remember that the issue of stock dividend will only change the balances of some of the accounts but not the total stockholder's equity.
The dollar amount of retained earnings after the transfer is
Retained earnings balance = $280,000,000 - $110,400,000
= $169,600,000
Therefore, the retained earnings balance after the issue of stock dividend is $169,600,000
The correct option is 5) $169.6 million