Question

The company with the common equity accounts shown here has declared a 11 percent stock dividend at a time when the market value of its stock is $42 per share.

Common stock ($1 par value) $ 510,000

Capital surplus 1,559,000

Retained earnings 3,886,000

Total owners’ equity $ 5,955,000

Show the new equity account balances after the stock dividend distribution. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Common stock $

Capital surplus

Retained earnings

Total owners’ equity $

Answer 1

In the given question, stock dividend declared by the company is 11% which is considered to be small stock dividend because the new shares being issued are less than 20-25% of the total number of shares outstanding prior to the stok dividend.

On the declaration date of small stock dividend, a journal entry is made to transfer the market value of the shares being issued from retained earnings to the capital surplus section of owner's equity.

Company has 510000 shares of common stock outstanding when it declares a 11% stok dividend.This means that 56100( 510000 shares times 11%) new shares of stock will be issued to existing stockholders.

Journal Entry is-

Retained Earnings ( 56100 shares X $42) $2,356,200

Common Stock dividend distributable ( 56100 shares X $ 1) $56,100

Capital Surplus ( In excess of Par Value ) $2,300,100

When 56100 shares are distributed to the stockholder, the following journal entry is made -

Common Stock dividend distributable $56,100

Common Stock $56,100

So, the new equity account balance after stock dividend,

Common Stock ($510000 + $ 56,100 ) $566,100

Capital Surplus ( $ 1,559,000 + $ 2,300,100) $3,859,100

Retained Earnings ( $3,886,000 - $2,356,200) $1,529,800

Total Owner's Equity $5,388,900