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25 September, 20:15

On October 1, 2021, Chief Corporation declared and issued a 10% stock dividend. Before this date, Chief had 80,000 shares of $5 par common stock outstanding. The market price of Chief Corporation on the date of declaration was $10 per share. As a result of this dividend, Chief's retained earnings will:

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  1. 25 September, 20:30
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    Decrease by $80,000

    Explanation:

    The journal entries are shown below;

    Retained earning Dr $80,000 (8,000 shares * $10)

    To Common stock $40,000 (8,000 shares * $5)

    To Paid in capital in excess of par $40,000 (8,000 shares * $5)

    (Being the retained earning is recorded)

    So by passing this journal entry we get to know that the retained earning will decreases by $80,000
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