Katie Company Had 40,000 Shares of $2 Par Value Common

Multiple Choice

Katie Company had 40,000 shares of $2 par value common stock outstanding prior to a 40% common stock dividend declaration and distribution. The market value of the common stock on the declaration date was $10. Which of the following statements incorrectly describes the effect of the common stock dividend and declaration?

A) Retained earnings decreased $32,000.
B) Capital in excess of par remained the same.
C) Additional Paid in capital increased $128,000.
D) Total stockholders' equity remained the same.