Lavender, Inc. announces a large stock dividend of 65% of the 3.1 million outstanding shares of common stock. The current price per share is $8.85. Par value of the stock is $0.01 per share. What effect does this dividend have on retained earnings?

a. $31,000 decrease

b. $20,150 decrease

c. $17,832,750 decrease

d. $11,591,288 decrease

Question

Gemma Spears

Business

11 October, 09:17

Lavender, Inc. announces a large stock dividend of 65% of the 3.1 million outstanding shares of common stock. The current price per share is $8.85. Par value of the stock is $0.01 per share. What effect does this dividend have on retained earnings?

a. $31,000 decrease

b. $20,150 decrease

c. $17,832,750 decrease

d. $11,591,288 decrease

+5

Answers (1)

Know the Answer?

Adriel Frey · Answer 1

Answer: b. $20,150 decrease

Explanation:

First we would need to calculate the Dividend per share.

We will get that by taking 65% of the Par Value of the Stock.

= 0.01 * 0.65

= $0.0065 is the dividend per share

Multiplying by the total amount of shares outstanding we have,

= 3,100,000 x 0.0065

= $20,150

Seeing as this figure would come from the Retained earnings, we can say that Retained Earnings will reduce by $20,150.