The Rupley Company declared and distributed a 5% stock dividend. The stockholder

Question

The Rupley Company declared and distributed a 5% stock dividend. The stockholders' equity before the dividend was as follows: Common stock, 5,000,000 shares, $1 par $5,000,000 Additional paid-in capital 20,000,000 Retained earnings 50,000,000 Total stockholders' equity $75,000,000 The market price of Rupley's shares was $10 when the stock dividend was distributed. Rupley paid cash of $15,000 in lieu of issuing fractional shares. 1. Prepare the journal entry for the declaration and distribution of the stock dividend. 2. Show the stockholders' equity section after the stock dividend. 3. How did the stock dividend affect total stockholders' equity? How did it affect the proportion of the company owned by each shareholder?

Explanation / Answer

Answer 1 Journal entry for the declaration and distribution of the stock dividend Account Titles Debit Credit Retained Earnings $2,500,000.00 Stock dividend Distributable $2,500,000.00 (to record declaration of stock dividend) Stock dividend Distributable $2,500,000.00 Common stock $250,000.00 Additional Paid in capital $2,250,000.00 (to record distribution of stock dividend) No.of shares issued as stock dividend = 5000000 shares * 5% = 250000 shares Answer 2 Stockholders Equity section after the stock dividend Common stock ,5250000 shares $1 par $5,250,000 Additional paid in capital $22,250,000 Retained Earnings $47,500,000 Total Stockholders Equity $75,000,000 Answer 3 Stock dividend does not affect total stockholders equity as total equity remain at same level as it was before issue of stock dividend. The propostion of the shares owned by each shareholders increased by 0.5%

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