On December 31, 2011, the stockholders’ equity section of Blackwell Co. was as f

Question

On December 31, 2011, the stockholders’ equity section of Blackwell Co. was as follows:

Common stock, par value $10; authorized, 60,000 shares;
Issued and outstanding, 18,000 shares................................. $180,000

Additional paid-in capital 232,000

Retained Earnings 192,000

Total Stockholders’ Equity $604,000

On March 31, 2012, Blackwell declared a 10 percent stock dividend, and accordingly 1,800 additional shares were issued, when the fair market value of the stock was $16 per share. For the three months ended March 31, 2012, Blackwell sustained a net loss of $64,000. The balance of Blackwell’s Retained Earnings as of March 31, 2012 should be?

Explanation / Answer

Current market price is $16 per share, a 10% stock dividend reduces retained earnings and increases stockholders equity as follows: 10% Stock Dividend declared and issued Account Debits Credits Retained Earnings $28,800 - Common Stock, $10 par (1,800 x $10) - $18,000 Paid in Capital, Excess of Par (1,800 x $6) - $10,800 SO Retained earnigs Bal on 31 Mar'12 will be as below :- Bal as on 31 Dec'12 $192,000 Less : Due to Stock Div ($28,800) Less : Loss ($64,000) ------------------------------- Cl/Bal = $99,200 -----------------------

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