Question

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The stockholders’ equity of TVX Company at the beginning of the day on February 5 follows:

Common stock—$10 par value, 150,000 shares authorized, 69,000 shares issued and outstanding	$	690,000
Paid-in capital in excess of par value, common stock		525,000
Retained earnings		675,000
Total stockholders’ equity	$	1,890,000

On February 5, the directors declare a 16% stock dividend distributable on February 28 to the February 15 stockholders of record. The stock’s market value is $41 per share on February 5 before the stock dividend. The stock’s market value is $35 per share on February 28.

1. Prepare entries to record both the dividend declaration and its distribution.

Record the declaration of 16% stock dividend.

Date	General Journal	Debit	Credit
Feb 05

Record the distribution of 16% stock dividend.

Date	General Journal	Debit	Credit
Feb 28

2. One stockholder owned 600 shares on February 5 before the dividend. Compute the book value per share and total book value of this stockholder’s shares immediately before and after the stock dividend of February 5. (Round your "Book value per share" answers to 3 decimal places.)

Before	After
Book value per share
Total book value of shares		$

3. Compute the total market value of the investor’s shares in part 2 as of February 5 and February 28.

	February 5	February 28
Total market value of shares

Answer 1

TVX Companya has 69000 shares of common stock outstanding on Feb 5, when it declares a 16% stock dividend. This means that 11040 (69,000 shares times 16%) new shares of stock will be issued to existing stockholders.

1. The stock has a par value of $10 per share and a market value of $41 per share on the declaration date, the following entry is made on the declaration date:   

Date	General Journal	Debit	Credit
Feb 5	Retained Earnings (11040 shares * $41)	452640
	Common Stock Dividend Distributable Paid up Capital in Excess of Par		110400 342240

When the 11040 shares are distributed to the stockholders, the following journal entry is made:

Date	General Journal	Debit	Credit
Feb 28	Common Stock Dividend Distributable	110400
	Common Stock		110400

2. Total Stockholders Equity before Stock Dividend =1890000

No. of Shares outstanding before stock dividend = 69000

Book Value per share before stock dividend = 1890000/69000 = $27.391

Total Stockholders Equity after Stock Dividend :-

Common Stock Par value

(69000+11040 = 80040 shares* $10) = 800400

Paid up Capital in Excess of Par Value

(525000+342240) = 867240

Retained Earnings (675000-452640) = 222360

Total Stakeholders Equity After Stock dividend = 1890000

No. of Shares outstanding after stock dividend = 80040

Book Value per share after stock dividend =

1890000/80040 = $23.613

3. Investor's Shares before stock dividend = 600

Investor's Shares after stock dividend = 600 + (600*16%) = 696

	Feb 5	Feb 28
Total Market Value of shares	600* 41= $24600	696*35= $24360

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