Gonzalez Company has 350,000 shares of $10 par value common stock outstanding. During the year, Gonzalez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Gonzalez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by

retained earnings decrease by 1,242,500 as a result of the dividends policy through the year.

Explanation:

Stock dividends:

calcualtion for share issued

350,000 shares x 10% = 35,000 shares

value of the diviends: issued shares x market value

35,000 shares x $30 = 1,050,000 dividends

cash dividends (we have to also account for the new shares)

350,000 + 35,000 = 385,000 shares receive cash dividends

385,000 shares x $0.50 per share = 192,500 dividends

total dividends 1,242,500

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