Question

 

Show the effects of these transactions on the balance sheet equity accounts. Presently the stock price is $20 per share. You started with: common stock ($1 par value) $10,000, capital surplus $100,000, retained earnings $200,000:

part a: 12% stock dividend

part b: repurchased 1,000 shares

Answer 1

Number of common shares outstanding = Total par value /Par value per share

                         = 10000 /1

                         = 10000 shares

a) 12% stock dividend

Number of shares issued as stock dividend = 10000*12%= 1200 share

Amount debited to retained earning =Number of shares issued as stock dividend*market price

                        = 1200*20

                         = 24000

capital surplus =Number of shares issued as stock dividend*(market price-par value)]

               = 1200 [20-1]

               = 22800

Common stock [10000+(1200*1)stock dividend]	11200
capital surplus [100000 +22800]	122800
Retained earning [200000-24000]	176000
Total stockholders equity	310000

b)Cost of repurchased shares:

Common stock	10000
capital surplus	100000
Retained earning	200000
less:Treasury stock (1000*20)	(20000)
Total stockholders equity	290000