The owners’ equity accounts for Alexander International are shown here: Common s

Question

The owners’ equity accounts for Alexander International are shown here: Common stock ($0.50 par value) $ 46,000 Capital surplus 380,000 Retained earnings 828,120 Total owners’ equity $ 1,254,120 a-1 If Alexander stock currently sells for $20 per share and a 15 percent stock dividend is declared, how many new shares will be distributed? New shares issued a-2 Show how the equity accounts would change. Common stock $ Capital surplus Retained earnings Total owners’ equity $ b-1 If instead Alexander declared a 20 percent stock dividend, how many new shares will be distributed? New shares issued b-2 Show how the equity accounts would change. (Negative amount should be indicated by a minus sign.) Common stock $ Capital surplus Retained earnings Total owners’ equity $

Explanation / Answer

a-1.

The shares outstanding increases by 15 percent, so :

New shares outstanding = 92,000(1.15) = 105,800

New shares issued = 13,800

a-2.

Since the par value of the new shares is $.50, the capital surplus per share is $19.50. The total capital surplus is therefore :

Capital surplus on new shares = 13,800($19.50) = $269,100

Common stock ($.50 par value) = $52,900

b-1.

The shares outstanding increases by 20 percent, so :

New shares outstanding = 92,000(1.20) = 110,400

New shares issued = 18,400

b-2.

Since the par value of the new shares is $.50, the capital surplus per share is $19.50. The total capital surplus is therefore :

Capital surplus on new shares = 18,400($19.50) = $358,800

Common stock ($.50 par value) = $55,200

Common Stock 52,900 Capital Surplus (380,000 + 269,100) 649,100 Retained Earning 552,120 Total Owners' Equity 1,254,120

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