A Company Declares a 40% Large Stock Dividend When There

Multiple Choice

A company declares a 40% large stock dividend when there were 4 million common shares outstanding with a $1 par value.The current market price is $20 per common share.Which of the following will be the effect of the stock dividend?

A) Retained earnings will decrease by $1.6 million and common stock will increase by $1.6 million.
B) Retained earnings will decrease by $1.6 million and additional paid-in capital will increase by $1.6 million.
C) Retained earnings will decrease by $32 million and common stock will increase by $32 million.
D) Retained earnings will decrease by $32 million,common stock will increase by $1.6 million and additional paid-in capital will increase by $30.4 million.