The owners’ equity accounts for Freya International are shown here: Common stock
ID: 2761960 • Letter: T
Question
The owners’ equity accounts for Freya International are shown here: Common stock ($.60 par value) $ 37,500 Capital surplus 325,000 Retained earnings 718,120 Total owners’ equity $ 1,080,620
a-1 If Freya stock currently sells for $20 per share and a 20 percent stock dividend is declared, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued
a-2 Show how the equity accounts would change. (Do not round intermediate calculations.) Common stock $ Capital surplus Retained earnings Total owners’ equity $
b-1 If instead Freya declared a 25 percent stock dividend, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued
b-2 Show how the equity accounts would change. (Do not round intermediate calculations.) Common stock $ Capital surplus Retained earnings Total owners’ equity $
Explanation / Answer
Answer
Note
Figures in $
Particulars
Amount
Common stock
37500
(62500*0.6)
Capital Surplus
325000
Retained earnings
718120
Total Owner’s Equity
1080620
Answer a-1
If Freya stock currently sells for $20 per share and a 20 percent stock dividend is declared, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued
Stock Dividend = % dividend declared * Shares outstanding * par value per share
= 20% * 37500
= $ 7500
Number of Shares to be distributed = Stock Dividend/ Current market price per share
= $ 7500 / $ 20
= 375
Answer a-2
Show how the equity accounts would change. (Do not round intermediate calculations.) Common stock $ Capital surplus Retained earnings Total owners’ equity $
Figures in $
Particulars
Amount
Common stock
37500
(62500*0.6)
Addition
225
37725
(375*0.6)
Paid in capital in excess of par
7275
(7500-225)
Capital Surplus
325000
Retained earnings
718120
Less : Stock Dividend
-7500
710620
Total Onwer's Equity
1080620
Answer b-1
If instead Freya declared a 25 percent stock dividend, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued
Stock Dividend = % dividend declared * Shares outstanding * par value per share
= 25% * $ 37500
= 9375
Number of Shares to be distributed = Stock Dividend/ Current market price per share
= $ 9375 / $ 20
= 468 (rounded to previous full decimal)
Answer b-2
Show how the equity accounts would change. (Do not round intermediate calculations.) Common stock $ Capital surplus Retained earnings Total owners’ equity $
Figures in $
Particulars
Amount
Common stock
37500
(62500*0.6)
Addition
280.80
37780.80
(468*0.6)
Paid in capital in excess of par
9094.2
(9375-280.80)
Capital Surplus
325000
Retained earnings
718120
Less : Stock Dividend
-9375
708745
Total Owner’s Equity
1080620
Figures in $
Particulars
Amount
Common stock
37500
(62500*0.6)
Capital Surplus
325000
Retained earnings
718120
Total Owner’s Equity
1080620
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