The stockholders\' equity section of the balance sheet for Shawnee Corporation a

Question

The stockholders' equity section of the balance sheet for Shawnee Corporation appeared as follows before its recent stock dividend:

Shawnee declared a 10% stock dividend when the market price per share was $10. After the stock dividend was distributed, the components of the stockholders' equity section were:

There would be no change in the components of stockholders' equity.

Common stock, $5 par, 10,000 shares issued and outstanding $ 50,000 Additional paid-in capital - common 60,000 Retained earnings 75,000 Total stockholders' equity $185,000

Explanation / Answer

Common stock, $5 par, 10,000 shares issued and outstanding = $ 50,000

stock dividend distributed = 10%

stock dividend distirbutied = $50000 *10% = $5000

common stock after stock dividend distributed = $55000

Additional paid in capital- common stock before stock dividend = $ 60000

Additional paid in capital- common stock after stock dividend = $ 60000 + [($10 - $5) * 5000] = $65000

Retained earning before stock dividend = $ 75000

retained earnings after stock dividend = $75000 - $10*5000 = $65000

ANSWER = C)

Common Stock Add'l. Paid-in Capital Retained Earnings

$55,000 $65,000 $65,000

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