Matty Inc issued 1250 shares of its 200 stated value common

Matty Inc issued 1,250 shares of its $2.00 stated value common stock for $30 per share, and declared and paid cash dividends totaling $2.00 per share.

By what amount does contributed capital increase as a result of these events?

Solution

Answer:

Calculation of increase in capital

Value of common stock = $37,500 (1,250 × $30)

Less: par value of shares = $ 2,500 (1,250 × $2)

Less: Cash dividend = $ 2,500 (1250 × $2)

Increase in capital = $32,500

Notes: If dividend is a stock dividend then we can\'t reduce from capital but because it is a cash dividend we have to reduce from capital.