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The current stockholders’ equity on the balance sheet of Garrison Corporation, a distributor of prefabricated cabinets,...

The current stockholders’ equity on the balance sheet of Garrison Corporation, a distributor of prefabricated cabinets, is as shown in the following accounts. Preferred stock $300,000 Common stock (100,000 shares @ $4 par) 400,000 Paid-in capital in excess of par 600,000 Retained earnings 700,000 Total stockholders’ equity $2,000,000 Garrison declares a 10% stock dividend when the market price of its stock is $15 per share. The resulting account balances are as follows:

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Expert Solution

Before stock dividend:

Number of shares outstanding = 100,000

Number of shares issued as dividend = 10% * Number of shares outstanding
Number of shares issued as dividend = 10% * 100,000
Number of shares issued as dividend = 10,000

After stock dividend:

Increase in common stock = Number of shares issued as dividend * Par value per share
Increase in common stock = 10,000 * $4.00
Increase in common stock = $40,000

Decrease in retained earnings = Number of shares issued as dividend * Market price per share
Decrease in retained earnings = 10,000 * $15
Decrease in retained earnings = $150,000

Increase in paid-in capital in excess of par = Decrease in retained earnings - Increase in common stock
Increase in paid-in capital in excess of par = $150,000 - $40,000
Increase in paid-in capital in excess of par = $110,000

jeff jeffy answered 6 months ago
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