On January 31 2015 Village Bank had 500000 shares of 2 par v

On January 31, 2015, Village Bank had 500,000 shares of $2 par value common stock outstanding. On that date, the company declared a 14% stock dividend when the market price of the stock was $37 per share. The immediate effect of this dividend upon Village Bank was:

A liability to the stockholders of $140,000.

A reduction in retained earnings of $140,000.

A reduction in cash of $2,590,000.

A reduction in retained earnings of $2,590,000.

Solution

Market value of stock dividend=500,000 x 14% x 37 = 2,590,000 .
d.A reduction in retained earnings of $2,590,000.