Question

Boats and Bait has 72,000 shares outstanding that sell for a price of $68 per share. The stock has a par value of $3 per share. The company's balance sheet shows capital surplus of $155,000 and retained earnings of $195,000. If the company declares a stock dividend of 15 percent, what is the new common stock value on the balance sheet?

Answer 1

Outstanding shares = 72,000 shares | Market Price = $68 | Par value = $ 3 | Capital Surplus = $ 155,000

Retained Earnings = $ 195,000

With 15% stock dividends, 72,000 * 15% = 10,800 new shares would be outstanding.

Below would be the journal entry company would make on declaration date:

Debit Credit

Retained Earnings (10,800 * 68) 734,400

Common Stock dividend distributable (10,800 * 3) 32,400

Paid-In Capital or Capital Surplus - Common Stock 702,000

(734,400 market value - 32,400 par value)

As company had to issue additional shares of par value at 32,400, it would be added to the common stock value on the balance sheet

The Common Stock dividend distributable credited above will be there until the stock dividends are distributed to the shareholders. Post issuance of dividends, the Common Stock will increase by 32,400 of par value.

Pre Stock Dividend Common Stock Value = 72,000 * 3 = 216,000

Post Stock Dividend Common Stock Value = 216,000 + 32,400 or 10,800 * 3

Post Stock Dividend Common Stock Value = $ 248,400