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Homework answers / question archive / The company with the common equity accounts shown here has declared a stock dividend of 10 percent at a time when the market value of its stock is $34 per share
The company with the common equity accounts shown here has declared a stock dividend of 10 percent at a time when the market value of its stock is $34 per share. $ 480,000 Common stock ($1 par value) Capital surplus Retained earnings 865,000 3,910,800 Total owners' equity $5,255,800 What would be the number of shares outstanding, after the distribution of the stock dividend? (Do not round intermediate calculations.) New shares outstanding What would the equity accounts be after the stock dividend? (Do not round intermediate calculations.) Common stock Capital surplus Retained earnings Total owners' equity
a) given that number of shares oustanding before stock dividend=480,000/1=480,000.numbers.
note: after 10% stock dividend the the total number of common shares outstanding will be increased by 10%.
so , total number of common shares outstanding after stock dividend=480,000*1.1=528,000.numbers.
number of new shares=528,000-480,000=48,000.
b) Shares issued in a small stock dividend (25% or less of the total shares outstanding) are valued at the fair
value of the shares on the date of declaration:
Dr Retained earnings ..................... fair value of shares distributed
Cr Common shares – issuable as a dividend ........ par value of shares
Cr Additional paid-in capital – common shares ...... balancing amount.
given that fair value of one share=34.
so fair value of all shares distributed=34*48,000=1,632,000.
so entry will be like this.
Dr Retained earnings ..................... 1,632,000.
Cr Common shares – issuable as a dividend ........ 48,000.
Cr Additional paid-in capital – common shares ...... 1,584,000.
so equity accounts after stock dividend is as follows.
common stock=480,000.+ 48,000.= 528,000.
additional paid in capital=865,000+1,584,000.=2,449,000.
retained earnings=3,910,800-1,632,000.=2,278,800.
