Answer:
The retained earnings decreased by $1,020,600
Step-by-step explanation:
Given that Rayan Company has 420,000 shares of $ 10 par. Rayan then declared a 5% share dividend when the market price of the shares was $36 per share.
Let's calculate the shares issued as stock dividends below:
Issued shares = stock dividends * outstanding shares
= 5% * 420,000
= 21,000
21,000 shares were issued.
Let's calculate the stock dividends.
Stock dividends = issued shares * market price per share
= 21,000 * $36
= $756,000
Stock dividends is $756,000
Let's calculate the amount of cash dividends, since the company declared a $0.60 per share cash dividend after 3 months. We have:
Cash dividend = cash dividend per share * new number of shares.
= $0.60 * (420,000 + 21,000)
= $0.60 * 441,000
= $264,600
Cash dividends paid is $264,600
The find the decrease in retained earnings, we have:
Decrease in Retained earnings = cost of stock dividend + cash dividend.
= $756,000 + $264,600
= $1,020,600
Therefore, the retained earnings decreased by $1,020,600
