The Walton Firm has 1,000,000 common shares issued and outstanding. This stock was issued at a...
The Walton Firm has 1,000,000 common shares issued and outstanding. This stock was issued at a premium above its $10 per share par value. During the current fiscal year, the board of directors declared a 15 percent stock dividend that created 10,000 new shares issued to the existing stockholders when the price of the stock was $35 per share. Based on this information, what is the amount of the reduction recorded in stockholders' equity?
a. $1,500,000
b. $3,500,000
c. $1,000,000
d. 0
Homework Answers
Answer is ------> Option D ----> $ 0
Explanation :
There is always double effect of the transaction. Since in the above transaction , the amount of stock dividend
will be reduced from retained earning and added in share capital.
Talking about the effect in stockholder equity ( which included both retained earning and share capital ) , the net
effect will be 0 , as one will be added and the same amout will be deduced from the another .
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