Question

The owners’ equity accounts for Vidi International are shown here:

  

Common stock ($.40 par value)	$	44,000
Capital surplus		360,000
Retained earnings		788,120
Total owners’ equity	$	1,192,120

  

a-1	If the company's stock currently sells for $30 per share and a 10 percent stock dividend is declared, how many new shares will be distributed? (Do not round intermediate calculations.)

     

a-2	Show how the equity accounts would change. (Do not round intermediate calculations.)

     

b-1	If instead the company declared a 20 percent stock dividend, how many new shares will be distributed? (Do not round intermediate calculations.)

     

b-2	Show how the equity accounts would change. (Do not round intermediate calculations.)

     

Answer 1

a-1)under small stock dividend ,dividend declared are less than 25% of outstanding shares .

The amount debited to retained earning equals to market value of shares declared as sock dividend.

number of shares outstanding : common stock /par value

                                            = 44000/.40

                                           = 110000 shares

stock dividend issued :110000*10%= 11000 shares

Number of shares issued as stock dividend = 11000 shares

a-2)Shares after stock dividend : 110000+11000= 121000

Capital surplus increase by : [30-.40 par value ]*11000= 325600

Retained earning will decrease by : 11000*30 =330000

common stock (121000*.40)	48400
capital surplus [360000+325600]	685600
Retained earning [788120-330000]	458120
Total owners equity	1192120

b-1)shares issued as stock dividend : 110000*20%= 22000 shares

b-2)

Shares after stock dividend : 110000+22000= 132000 shares

Capital surplus increase by : [30-.40 par value ]*22000= 651200

Retained earning will decrease by : 22000*30 =660000

common stock (132000*.40)	52800
capital surplus [360000+651200]	1011200
Retained earning [788120-660000]	128120
Total owners equity	1192120