1.In the real world, we find that dividends: a) b) c) d) 2. The company with the
ID: 2802409 • Letter: 1
Question
1.In the real world, we find that dividends:
a)
b)
c)
d)
2.
The company with the common equity accounts shown here has declared a 10 percent stock dividend when the market value of its stock is $20 per share. What is the capital surplus account after the 10 percent stock dividend?
Common stock ($1 par value)
$ 406,000
Capital Surplus
1,340,000
Retained earnings
3,427,000
Total owners’ equity
$ 5,173,000
a)
b)
c)
d)
e)
a)
usually exhibit greater stability than earnings.b)
fluctuate more widely than earnings.c)
tend to be a lower percentage of earnings for mature firms than for newer firms.d)
are usually set as a fixed percentage of earnings every year.Explanation / Answer
1) d is correct. Typically, dividends are set as a percentage of earnings. Mature firms pay higher dividends than startups.
2) d is correct.
No. of outstanding shares = Common Stock / Par Value = 406,000
10% stock dividend = 10% x 406,000 = 40,600 newly issued shares which would increase capital surplus by
New shares x (Market Value - Par Value) = 40,600 x (20 - 1) = 771,400
New Capital Surplus = 771,400 + 1,340,000 = 2,111,400
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