Question

On July 31, 2020, when a company’s stock was selling at $67 per share, its equity accounts were as follows:

Capital stock (par value $40; 50,000 shares issued)              $2,000,000

Paid-in Capital in Excess of Par—Common Stock                   600,000

If a(an) 14% stock dividend was declared and distributed, Paid-in Capital in Excess of Par—Common Stock would be ____________________. (Note the question asks what PIC in Excess of Par - c/s is after the stock dividend, not the change in PIC in Excess of Par - c/s.)

Answer 1

Number of outstanding share = 50,000

Stock dividend = 14%

Number of common shares issued in stock dividend = 50,000 x 14%

= 7,000

Market price per share = $67

Par value per share = $40

Increase in paid in capital in excess of par = Number of common shares issued in stock dividend x (Market price per share-Par value per share )

= 7,000 x (67-40)

= 7,000 x 27

= $189,000

Paid in capital in excess of par, before stock dividend = $600,000

Paid in capital in excess of par after stock dividend = Paid in capital in excess of par, before stock dividend + Increase in paid in capital in excess of par

= 600,000+189,000

= $789,000

Kindly comment if you need further assistance.

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