Homework SourseThe owners equity accounts for Overby International are show
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 | ||
Solution
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 |
