Samuel's has 7,000 shares of stock outstanding with a par value of $1.00 per share and...

Samuel's has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $12 per share. The balance sheet shows $7,000 in the common stock account, $58,000 in the capital in excess of par account and $32,500 in the retained earnings account. The firm just announced a 50% (large) stock dividend. What is the value of the capital in excess of par account after the dividend?

Expert Solution

Stock dividend is declared from the retained earnings of the company and so when stock dividend is declared the retained earnings balance would reduce and the common stock and paid in capital excess of par value would increase due to issue of new common stock

In the above case the stock dividend is issued at market value and so the amount in excess of par value would be reported under paid in capital.

However in case of large stock dividend, the stock dividend is issued at par value and so the capital in excess of par account would not be impacted.

Company has declared large stock dividend and so the stock dividend would be issued at $1 per share which would reduce the retained earnings by $3,500 (7,000*50%*$1)

The common stock value would increase by $3,500 (7,000*50%*$1) and there would be no impact on the capital in excess of par account as stock dividend is issued at par value.

Thus, the value of capital in excess of par account after the dividend would remain same that is it would be $58,000.

jeff jeffy answered 1 year ago

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