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

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