Question

The owners’ equity accounts for Freya 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 Freya 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.)

  

New shares issued

  

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

  

Common stock	$
Capital surplus
Retained earnings
Total owners’ equity	$

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

New shares issued

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

  

Common stock	$
Capital surplus
Retained earnings
Total owners’ equity	$

Answer 1

Required a-1
New Shares issued, if 10% stock dividend is declared
= (44,000/0.40)*10%
= 11,000 shares
Required a-2
Common stock ($.40 par value)	($44,000+(11,000*$0.4))	48,400
Capital surplus	($360,000+(11,000*($30-$0.40)))	6,85,600
Retained earnings	($788,120-$4,400-$325,600)	4,58,120
Total owners’ equity	$	11,92,120
Required b-1
New Shares issued, if 20% stock dividend is declared
= (44,000/0.40)*20%
= 22,000 shares
Required b-2
Common stock ($.40 par value)	($44,000+(22,000*$0.4))	52,800
Capital surplus	($360,000+(22,000*($30-$0.40)))	10,11,200
Retained earnings	($788,120-$8,800-$651,200)	1,28,120
Total owners’ equity	$	11,92,120