Question

# On June 30, Sharper Corporation’s stockholders' equity section of its balance sheet appears as follows before...

On June 30, Sharper Corporation’s stockholders' equity section of its balance sheet appears as follows before any stock dividend or split. Sharper declares and immediately distributes a 50% stock dividend. Common stock—\$10 par value, 120,000 shares authorized, 74,000 shares issued and outstanding \$ 740,000 Paid-in capital in excess of par value, common stock 320,000 Retained earnings 720,000 Total stockholders’ equity \$ 1,780,000 Required: (1) Prepare the updated stockholders' equity section after the distribution is made. (2) Compute the number of shares outstanding after the distribution is made.

 Sharper Corporation Balance Sheet (Partial) Stockholders' Equity: Common stock-\$10 par value, 120,000 shares authorized, 111,000 shares issued and outstanding 1110000 Paid-in capital in excess of par value, common stock 320000 Retained earnings 350000 Total stockholders' equity \$ 1780000

In case of a large stock dividend (> 25%), the par value of the shares being issued is transferred from the retained earnings to the paid-in capital section of stockholders' equity.

Number of common shares issued as stock dividend = 74000 x 50% = 37000 shares

Amount transferred from retained earnings = 37000 x \$10 = \$370000

Thus, Common stock = \$740000 + \$370000 = \$1110000

Retained earnings = \$720000 - \$370000 = \$350000

The total stockholders' equity remains unchanged at \$1780000.

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