The company with the common equity accounts shown here has declared a 10 percent stock dividend...

Question:

The company with the common equity accounts shown here has declared a 10 percent stock dividend at a time when the market value of its stock is $49 per share.

Common stock ($1 par value) $ 560,000

Capital surplus 1,564,000

Retained earnings 3,896,000

Total owners' equity $ 6,020,000

Required: Show the new equity account balances after the stock dividend distribution.

Stock dividend

A stock dividend is not a true dividend because it is not paid in cash. The effect of a stock dividend is to increase the number of shares that each owner holds. Because there are more shares outstanding, each is simply worth less.

Answer and Explanation:

After the declaration, the outstanding shares increases by 10%.

  • So, new shares outstanding = 560,000 ( 1.10 ) = 616,000
  • New shares issued = ( 616,000...

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Dividend: Definition & Overview

from GMAT Prep: Tutoring Solution

Chapter 1 / Lesson 8
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