Stock Dividend Comparison Although Oriole Company has enough retained earnings l

Question

Stock Dividend Comparison Although Oriole Company has enough retained earnings legally to declare a dividend, its working capital is low. The board of directors is considering a stock dividend instead of a cash dividend. The common stock is currently selling at S34 per share. The following is Oriole's current shareholders' equity: Common stock, S10 par $400,000 Additional paid-in capital on common stock 800,000 Total contributed capital $1, 200,000 Retained earnings 1,300,000 Total shareholders' equity $2,500,000 Required: Assuming a 15% stock dividend is declared and issued, prepare the shareholders' equity section immediately after the date of issuance. Assuming, instead, that a 30% stock dividend is declared and issued, prepare the shareholders' equity section immediately after the date of issuance.

Explanation / Answer

1. 15% Stock dividend is declared and issued

Oriole Company

Shareholders' Equity

Retained Earnings A/c Dr. $204000 (6000 shares x $34) To Common Stock A/c $60000 (6000 shares x $10) To Paid in Capital A/c $144000 (6000 shares x $24) (Being 15% Stock Dividend is issued)

2. 30% Stock dividend is declared and issued

Oriole Company

Shareholders' Equity

Retained Earnings A/c Dr. $120000 ( 12000 shares x $10) To Common Stock A/c $120000 (12000 shares x $10) (Being 30% stock dividend declared and issued)

Common Stock, $10 par $460000 Additional paid-in capital on common stock $944000 Total Contributed capital $1404000 Retained Earnings $1096000 Total shareholders' equity $2500000

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