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28 January, 23:36

The stockholders' equity section of Marigold Corp.'s balance sheet consists of common stock ($7 par) $959,000 and retained earnings $410,000. A 10% stock dividend (13,700 shares) is declared when the market price per share is $18. (a) Show the before-and-after effects of the dividend on the components of stockholders' equity.

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  1. 28 January, 23:53
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    Find below the pre stock dividend and post stock dividend effects.

    Explanation:

    Before the declaration of stock dividend the equity section of the balance sheet would look thus:

    Common stock ($7 par) $959,000

    Paid in capital in excess of par -

    Total paid in capital $959,000

    Retained earnings $410,000

    Total shareholders' equity $1,369,000

    However, upon declaration of the stock dividend which would be funded from retained earnings by reducing the retained earnings and increasing the common stock as well as paid in capital in excess of par.

    Common stock ($7 par) ($7*13,700) + $959,000 $1,054,900

    Paid in capital in excess of par ($18-$7) * 13,700 $150,700

    Total paid in capital $1,205,600

    Retained earnings $410,000 - ($18*13,700) $163,400

    Total shareholders' equity $ 1,369,000
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