Joe Carry-out Coffee began the year with $89,000 in retained earnings, and 61,000 shares of $0.50 par value common stock originally issued at $10 per share. The board of directors declared $24,000 of cash dividends on June 30. On July 1, Joe Carry-out declared a 20% stock dividend. The market price of the Joe Carry-out stock was $12.50 just before the dividend. Which of the following is one effect on the day the stock dividend occurs?
Retained earnings declines by $152,500.
Common stock increases by $12,200.
Total shareholders’ equity increases by $152,500.
The market price of the stock increases by 20%.