The owners’ equity accounts for Overby International are shown here: a. Assume t

Question

The owners’ equity accounts for Overby International are shown here:
  

   
a. Assume the company's stock currently sells for $23 per share and a stock dividend of 12 percent is declared.
  
How many new shares will be distributed?
  
Show the new balance for each equity account.
  

  
b. Now assume that instead the company declares a stock dividend of 16 percent.

How many new shares will be distributed?     

Show the new balance for each equity account.

Common stock ($1 par value) $ 35,000 Capital surplus 212,000 Retained earnings 700,000 Total owners’ equity $ 947,000

Explanation / Answer

a.how many new shares will be distributed?

12 percent stock dividend is declared.

=> (existing number of shares * 12%)

existing number of shares = common stock amount / par value per share

=>$35,000 / $1

=>35,000 shares.

now new shares distributed will be = 35,000 shares * 12% =>4,200 shares.

now,

new balances:

b.16% stock dividend is declared.

=> 35,000 shares * 16% =>5,600 shares.

new balance for each equity account

common stock (35,000 +4,200) shares $1 par value $39,200 capital surplus (212,000 + ($23-$1)*4,200 shares) =>(212,000+92,400) 304,400 retained earnings (700,000 - $23*(4200 shares issued)) 603,400 Total owners equity $947,000

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