In: Finance
The owner's equity accounts for XYZ company are shown here: Common stock ($1 per value) $50,000 Capital surplus 345,000 Retained earnings 750,000 Total owner’s equity $1,145,000 If XYZ stock currently sells for $25 per share and a 15% stock dividend is declared, what is the amount of the retained earnings on the equity accounts after stock dividend.
Group of answer choices $308,900 $525,000 $562,500 $582,500 None of above is correct.
Given, | |||||||||
Common stock ($1 per value) | $50,000 | ||||||||
Capital surplus | $345,000 | ||||||||
Retained earnings | $750,000 | ||||||||
Market price | $25 | ||||||||
Stock dividend | 15% | ||||||||
Number of shares outstanding= Common stock/Par value per share | |||||||||
50000/1 | |||||||||
50000 | |||||||||
As the rate of dividend is 15% the same would be regarded as small stock dividend and would be accounted for at market price | |||||||||
Journal entry: | |||||||||
Debit ($) | Credit ($) | Workings | |||||||
Retained earnings | 187500 | (50000 shares*15% stock dividend*$25 per share) | |||||||
Common stock | 7500 | (50000*$1*15%) | |||||||
Paid in capital in excess of par | 180000 | (50000*($25-$1)*15%) | |||||||
Therefore, | |||||||||
Amount of retained earnings after stock dividend= $(750000-187500) | |||||||||
$562,500 | |||||||||
Answer: Option C |