Question

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 ____________

Answer 1

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