The company with the common equity accounts shown here has declared a 10 percent

Question

The company with the common equity accounts shown here has declared a 10 percent stock dividend when the market value of its stock is $40 per share. Common stock ($1 par value) $ 390,000 Capital surplus 847,000 Retained earnings 3,730,800 Total owners' equity $ 4,967,800 What would be the number of shares outstanding, after the distribution of the stock dividend? (Do not round intermediate calculations.) New shares outstanding What would the equity accounts be after the stock dividend? (Do not round intermediate calculations.) Common stock $ Capital surplus Retained earnings Total owners' equity $

Explanation / Answer

Stock dividend = $390,000 x 10% = $39,000

(a) Number of shares after stock dividend = 390,000 x 1.1 = 429,000

(b) Stock dividend will increase Common stock by $39,000 and decrease Retained earnings by $39,000.

Equity account will be:

Common stock = $(390,000 + 39,000) = $429,000

Capital surplus (unchanged) = $847,000

Retained earnings = $(3,730,800 - 39,000) = $3,691,800

Total owner's equity = $(429,000 + 847,000 + 3,691,800) = $4,967,800

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