#2) The company with the common equity accounts shown here has declared a 13 percent stock...

#2) The company with the common equity accounts shown here has declared a 13 percent stock dividend at a time when the market value of its stock is $43 per share. Common stock ($1 par value) $ 470,000 Capital surplus 1,555,000 Retained earnings 3,878,000 ________________________________________ ________________________________________ Total owners’ equity $ 5,903,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Required: Show the new equity account balances after the stock dividend distribution. Common stock $ Capital surplus Retained earnings ________________________________________ Total owners’ equity $ ________________________________________________________________________________ ________________________________________

Expert Solution

Before stock dividend:

Number of shares outstanding = Common stock / Par value per share
Number of shares outstanding = $470,000 / $1
Number of shares outstanding = 470,000

Number of shares issued as dividend = 13% * 470,000
Number of shares issued as dividend = 61,100

Market price per share = $43.00

Decrease in retained earnings = Number of shares issued as dividend * Market price per share
Decrease in retained earnings = 61,100 * $43.00
Decrease in retained earnings = $2,627,300

Increase in common stock = Number of shares issued as dividend * Par value per share
Increase in common stock = 61,100 * $1.00
Increase in common stock = $61,100

Increase in capital surplus = Decrease in retained earnings - Increase in common stock
Increase in capital surplus = $2,627,300 - $61,100
Increase in capital surplus = $2,566,200

jeff jeffy answered 1 year ago

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