Question

On May 1, 2021, Ziek Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Ziek had 200000 shares of $1 par value common stock issued and outstanding. The fair value of Ziek's common stock was $25 per share on May 1, 2021.
As a result of this stock dividend, Ziek's total stockholders' equity:

A) increased by $500000.
B) did not change.
C) decreased by $500000.
D) decreased by $25000.

Answer 1

Answer:

B) did not change.

Explanation:

Stock dividend is the payment of dividend to stockholder in the form of stock/shares of the company. Stock are issued at the market price and the value of the dividend is transferred from the retained earning to the add-in-capital accounts.

Dividend Value = 200,000 x 10% x 25 = $500,000

Par Value of Stocks = $1 x 20,000 = $20,000

Add-in-capital excess of par common stock = ($25-$1) x 20,000 = $480,000

Following entry will be recorded

Dr. Retained earning                                              $500,000

Cr. Common Stock                                                 $20,000

Cr. Add-in-capital excess of par common stock  $480,000

As all of the accounts are equity accounts and decrease in one equity account and increase in another equity account will not change the total stockholders equity value.