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The Western Pipe Company has the following capital section in its balance sheet. Its stock is...

The Western Pipe Company has the following capital section in its balance sheet. Its stock is currently selling for $5 per share.

  Common stock (65,000 shares at $1 par) $ 65,000
  Capital in excess of par 65,000
  Retained earnings 170,000
  Total equity $ 300,000

The firm intends to first declare a 5 percent stock dividend and then pay a 10-cent cash dividend (which also causes a reduction of retained earnings).

Show the capital section of the balance sheet after the first transaction and then after the second transaction. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)
  

Western Pipe Co.After Stock Dividend

Common stock $68,250

Capital in excess of par _________

Retained earnings _______

Western Pipe Co.After Stock Dividend

Common stock $68,250

Capital in excess of par __________

Retained earnings ____________

Solutions

Expert Solution

Req a:
Number of shares before stock dividend 65000
Stock dividend declared 5%
Shares given in stock dividend 3250
Amount of Stock dividend @ $ 5 16250
Amount credited to Common Stock 3250
(3250*1)
Amount credited to Capital in excess of Par 14000
(3250*4)
Amount deducted from Retained earnings 16250
Thus, Capital section after Stock dividend:
Common Stock capital (68250 shares @1) 68250
Capital in excess of Par (65000+14000) 79000
Retained earnings (170000-16250) 153750
Stockholder's equity 301000
Req b:
Cash dividend @ 10% on $ 68250 6825
Amount reduced from Retained earnings 6825
Thus, Capital Section after cash dividend:
Common Stock capital (68250 shares @1) 68250
Capital in excess of Par (65000+14000) 79000
Retained earnings (153750-6825) 146925
Stockholder's equity 294175

jeff jeffy answered 1 year ago
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