Question

1. Analyze the following transactions and indicate the effect on each of the following: total assets, total paid-in capital, total retained earnings, and total stockholders’ equity. (Make sure to state the effect in terms of increase or decrease with dollar amount, if there is no effect, please state that).

STOCKHOLDERS’ EQUITY

PAID-IN CAPITAL

    Preferred Stock - $50 par value; 6%, cumulative 2000 shares authorized, 1000 shares

          Issued and outstanding                                                                                     $50,000

    Paid in capital in Excess of Par – Preferred                                                              5,000

    Common Stock- $1 par value; 10,000,000 shares authorized, 2,000,000

          shares issued and outstanding                                                                      2,000,000

   

    Paid in capital in Excess of Par – Common                                                       19,000,000

    Total Paid-in Capital                                                                                              $21,055,000

    Retained Earnings                                                                                                      9,000,000

    Total Stockholders’ Equity                                                                                   $30,055,000

Transaction: (each transaction is independent)

a. The corporation declares and issues a 5% stock dividend on the common stock when the fair value of the stock is $12 per share.

b. The corporation declares and pays a regular cash dividend on the preferred stock.

c. The board of directors for the corporation announce a 2 for 1 stock split and issues new shares.

d. The corporation declares and issues a 30% stock dividend on the common stock when

      the market price of the stock is $16 per share.

Answer 1

a.

Total Assets	No effect
Total Paid in Capital	Increase	$     1,200,000
Total Retained Earnings	Decrease	$     1,200,000
Total Stockholder's Equity	No effect

b.

Total Assets	Decrease	$             3,000
Total Paid in Capital	No effect
Total Retained Earnings	Decrease	$             3,000
Total Stockholder's Equity	No effect

c.

Total Assets	No effect
Total Paid in Capital	No effect
Total Retained Earnings	No effect
Total Stockholder's Equity	No effect

d.

Total Assets	No effect
Total Paid in Capital	Increase	$       6,00,000
Total Retained Earnings	Decrease	$       6,00,000
Total Stockholder's Equity	No effect

Large stock dividend is accounted at par value