Question

On October 1, Cullumber Corporation’s stockholders’ equity is as follows.

Common stock, $5 par value		$376,000
Paid-in capital in excess of par—common stock		28,000
Retained earnings		154,000
Total stockholders’ equity		$558,000

On October 1, Cullumber declares and distributes a 10% stock dividend when the market price of the stock is $14 per share.

Indicate the balances in the three stockholders’ equity accounts after the stock dividend shares have been distributed. Please explain how you calculated each.
Common stock: ________

Paid-in capital in excess of par value: _________

Retained Earnings: ________

Answer 1

After distribution of stock dividends:

Common Stock	$ 413,600
Paid-in Capital in Excess of Par Value: Common Stock	95,680
Retained Earnings	48,720
Total Stockholders Equity	$ 558,000

Number of common shares outstanding on the date of declaration of dividends = $ 376,000 / $ 5 = $ 75,200

Number of common shares distributed as common shares = 75,200 x 10% = 7,520

Amount capitalized for stock dividends = 7,520 x $ 14 = $ 105,280

Decrease in retained earnings = $ 105,280

Increase in common stock = 7,520 x $ 5 = $ 37,600

Increase in paid-in capital in excess of par = $ ( 105,280 - 37,600) = $ 67,680