The stockholders’ equity of TVX Company at the beginning of the day on February

Question

The stockholders’ equity of TVX Company at the beginning of the day on February 5 follows: Common stock—$25 par value, 150,000 shares authorized, 63,000 shares issued and outstanding $ 1,575,000 Paid-in capital in excess of par value, common stock 525,000 Retained earnings 675,000 Total stockholders’ equity $ 2,775,000 On February 5, the directors declare a 14% stock dividend distributable on February 28 to the February 15 stockholders of record. The stock’s market value is $40 per share on February 5 before the stock dividend. The stock’s market value is $35 per share on February 28. 1.Prepare entries to record both the dividend declaration and its distribution. 2. One stockholder owned 450 shares on February 5 before the dividend. Compute the book value per share and total book value of this stockholder’s shares immediately before and after the stock dividend of February 5. (Round your "Book value per share" answers to 2 decimal places.) 3. Compute the total market value of the investor’s shares in part 2 as of February 5 and February 28. (Round your "Dividend per Preferred Share" answers to 2 decimal places.)

Explanation / Answer

Par value No. of shares 5-Feb 28-Feb Authorized 25 150000 40 35 Issued 25 63000 Paid in capital in excess of par value 1575000 Common stock 525,000 Retained earning 675000 2775000 The dividend distributable to the stockholders will be 8820 shares of stock (63,000 shares*14%), so the recorded value of the dividend is 352800 (8820 shares*$40 market price per share) Journal Entries Dividend value=25*14% Dividend value=$3.5 per share Total amount of dividend payable=63,000*$3.5 220500 Dr. Cr. 5-Feb Retained Earning A/c $        352,800 Dividend payables A/c $        220,500 Paid incapital in excess of par $        132,300 28-Feb Dividend payable A/c $        220,500 Cash A/c $        220,500 Answer 2. Before Dividend Book value per share=Total Stockholder's Equity/ Shares Outstanding Book value per share=2775000/ 63000 $44 per share After Dividend The dividend distributable to the stockholders will be 8820 shares of stock (63,000 shares*14%), 8820 shares were issued for dividend Total shares=63000+8820 71820 Book value per share=2775000/ 71820 $38.64 per share Because of the dividend shareholders have now 14% i.e. 63 more shares Total shares=450+63=513 Answer 3 Total market value 5-Feb 450*$40=$18000 28-Feb 513*35 $ 17,955.00

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