Question

The company with the common equity accounts shown here has declared a 11 percent stock dividend at a time when the market value of its stock is $51 per share.

Common stock ($1 par value)	$	450,000
Capital surplus		1,553,000
Retained earnings		3,874,000
Total owners’ equity	$	5,877,000

Show the new equity account balances after the stock dividend distribution. (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Common stock	$
Capital surplus
Retained earnings
Total owners’ equity	$

Answer 1

Number of shares before stock dividend = 450000 / $1 = 4500,000

Stock dividend = 450000 shares * 11% = 49500 shares

Common stock capital post split = (450000 + 49500) * $1 = $499,500

The stock price is $51 at the time of stock dividend. Hence amount credited to capital surplus is ($51 - $1) = $50

Amount credited to capital surplus = 49,500 * $50 = $2,475,000

Capital surplus account balance post split = 1,553,000 + 2,475,000 = 4,028,000

Retained earnings balance post split = Original balance - Stock dividend at current price

= 3,874,000 - 51 * 49,500 = 1,349,500

Total stockholder equity = 499500 + 4028000 + 1349500 = $5,877,000