Question

Alexander, Inc., declared and distributed a 10 percent stock dividend on its 700,000 shares of outstanding $5 par value common stock when the stock was selling for $12 per share. The outstanding shares had originally been sold at $8 per share. The balance in retained earnings before the declaration of the stock dividend, but after the addition of the current year’s net income, was $995,000. Prepare the stockholders’ section of Alexander’s balance sheet to reflect these facts.
Common Stock ____________
Addt'nal paid-in capital-Common Stock ____________
________________________ ____________
Retained earnings ____________
Total stockholders' equity ____________

Answer 1

Answer:

• Common Stock: 3,500,000
• Additional paid-in capital-Common Stock: 2,100,000  
• Retained earnings: 995,000

Total stockholders' equity: 6,595,000

Explanation:

• Common Stock: Values at the common stocks par value. (3,500,000 = 700,000 * 5)

• Additional paid-in capital-Common Stock: Difference between the paid price by stockholders and par value. The negations made after the issue of the stocks are not taken into account because they don´t include the company. (2,100,000 = 700,000 * 3)

• Retained earnings: As the dividend are declared after the end of the accountable year they are not taken into account. So the retained earnings final balance include the beginning balance plus the net income of the accountable period. (995,000)

• Total stockholders' equity: Addition of the previous items.