The owners\' equity accounts for Hexagon International are shown here Common sto

Question

The owners' equity accounts for Hexagon International are shown here Common stock ($.50 par value) Capital surplus Retained earnings $ 27,500 305,000 678,120 Total owners' equity $1,010,620 a-1. If the company's stock currently sells for $30 per share and a 15 percent stock dividend is declared, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued a-2. Show the new equity account balances after the stock dividend is paid. (Do not round intermediate calculations.) Common stock Capital surplus Retained earnings Total owners' equity b-1. If the company declared a 25 percent stock dividend, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued b-2. Show the new equity account balances after the stock dividend is paid. (Do not round intermediate calculations.) Common stock Capital surplus Retained earnings Total owners' equity

Explanation / Answer

Given that- Common stock ($0.5 par value) $            27,500 Capital surplus $          305,000 Retained earning $          678,120 Total owner's equity $       1,010,620 number of share = 27500/0.5 55000 Note : For stock dividend we need to increase number of share by its par value and need to increase capital surplus by difference of market value of share less par value. Corresponding reduction will be made in retained earning Answer a-1 increase in share is 15% of 55000 8250 Answer a-2 current share price = 30 hence retained earning need to reduce by (30)*8250 and capital surplus should increase by (30-0.5)*8250 Original changes revised Common stock ($0.5 par value) $            27,500 =8250*0.5 $            31,625 Capital surplus $          305,000 =8250*29.5 $          548,375 Retained earning $          678,120 =-8250*30 $          430,620 Total owner's equity $       1,010,620 $       1,010,620 Answer b-1 increase in share is 25% of 55000 13750 Answer b-2 current share price = 30 hence retained earning need to reduce by (30)*13750 and capital surplus should increase by (30-0.5)*13750 Original changes revised Common stock ($0.5 par value) $            27,500 =13750*0.5 $            34,375 Capital surplus $          305,000 =13750*29.5 $          710,625 Retained earning $          678,120 =-13750*30 $          265,620 Total owner's equity $       1,010,620 $       1,010,620

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