lll elrect ot a stock dividend on the stockholders\' equity? Cash versus stock d
ID: 2796661 • Letter: L
Question
lll elrect ot a stock dividend on the stockholders' equity? Cash versus stock dividend Milwaukee Tool has the following stockholders' equity P14-10 account. The firm's common stock currently sellsfor S4 per share. Preferred stock Common stock (400,000 shares at $1 par) Paid-in capital in excess of par Retained earnings $ 100,000 400,000 200,000 320,000 $1,020,000 Total stockholders' equity Show the effects on the firm of a cash dividend of $0.01, $0.05, $0.10, and $0.20 per share. a. b. Show the effects on the firm of a 1%, 5%, 10%, and 20% stock dividend. c. Compare the effects in parts a and b. What are the significant differences be- tween the two methods of paying dividends?Explanation / Answer
Ans A) Milwaukee Tools Manufacturing Cash dividend 0.01 0.05 0.1 0.2 Cash dividend $ 4,000.00 $ 20,000.00 $ 40,000.00 $ 80,000.00 Preferred Stock $ 100,000.00 $ 100,000.00 $ 100,000.00 $ 100,000.00 Common Stock $ 400,000.00 $ 400,000.00 $ 400,000.00 $ 400,000.00 Paid in Capital excess of par $ 200,000.00 $ 200,000.00 $ 200,000.00 $ 200,000.00 Retained Earnings $ 316,000.00 $ 300,000.00 $ 280,000.00 $ 240,000.00 Total Stockholder's Equity $ 1,016,000.00 $ 1,000,000.00 $ 980,000.00 $ 940,000.00 Working Cash dividend=(number of shares* cash dividend per share) 400000*0.01 400000*0.05 400000*0.1 400000*0.2 Retained Earnings=Retained Earning-Cash dividend $320000-$4000 $320000-$20000 $320000-$40000 $320000-$80000 Total stock holder's equity=Preferred stock+Common stock+Paid in capital excess of par+Retained earnings Ans B ) Stock Dividend 1% 5% 10% 20% Dividend in the form of shares $ 16,000.00 $ 80,000.00 $ 160,000.00 $ 320,000.00 Preferred Stock $ 100,000.00 $ 100,000.00 $ 100,000.00 $ 100,000.00 Common Stock $ 404,000.00 $ 420,000.00 $ 440,000.00 $ 480,000.00 Paid in Capital excess of par $ 212,000.00 $ 260,000.00 $ 320,000.00 $ 440,000.00 Retained Earnings $ 304,000.00 $ 240,000.00 $ 160,000.00 $ - Total Stockholder's Equity $ 1,020,000.00 $ 1,020,000.00 $ 1,020,000.00 $ 1,020,000.00 Working Journal entries When Dividend 1%=(400000*1%)=4000 Retained Earnings=(number of shares * Market Price per shares)(4000*$4) $ 16,000.00 To Common stock dividend distributable(4000*$1) $ 4,000.00 To Paid in capital excess of par(4000*3) $ 12,000.00 When Dividend 5%=(400000*5%)=20000 Retained Earnings=(number of shares * Market Price per shares)(20000*$4) $ 80,000.00 To Common stock dividend distributable(20000*$1) $ 20,000.00 To Paid in capital excess of par(20000*3) $ 60,000.00 When Dividend 10%=(400000*10%)=40000 Retained Earnings=(number of shares * Market Price per shares)(40000*$4) $ 160,000.00 To Common stock dividend distributable(40000*$1) $ 40,000.00 To Paid in capital excess of par(40000*3) $ 120,000.00 When Dividend 20%=(400000*20%)=80000 Retained Earnings=(number of shares * Market Price per shares)(80000*$4) $ 320,000.00 To Common stock dividend distributable(80000*$1) $ 80,000.00 To Paid in capital excess of par(80000*3) $ 240,000.00 Ans c ) Stockholder Equity will remains the same in case of stock dividend because amount taken from retained earnings and issue new shares for the same amount including paid in capital excess of par but in case of cash dividend retained earnings will be reduced with the amount of cash dividend.
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