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Stock Dividend

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The stockholders' equity section of Milroy Corporation as of December 31, 2003, was as follows:

Common stock, par value $2; authorized 20,000 shares;
issued and outstanding 10,000 shares $20,000

Paid-in capital in excess of par 30,000
Retained earnings $90,000
Total $140,000

On March 1, 2004, the board of directors declared a 10% stock dividend, and accordingly 1,000 additional shares were issued. On March 1, 2004, the fair market value of the stock was $6 per share. For the two months ended February 28, 2004, Milroy sustained a net loss of $10,000.

What amount should Milroy report as retained earnings as of March 1, 2004?

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The solution explains the impact on retained earnings of a stock dividend.

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When the stock dividend is issued, retained earnings would reduce ...

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