Question

Malea Liberty has 800,000 common stock shares outstanding. It has decided to declare a 30 percent stock dividend. The new par value is the same as the original par value, $3. Before the declared dividend, the retained earnings account was $60,000,000 and capital in excess of par was $13,600,000. The current stock price is $40 per share. Calculate the new values for the following items:
a. Capital in excess of par:_______ $
b. Retained earnings:_____________$

Answer 1

Answer:

Capital in excess of par =  $22,480,000

Retained Earnings = $50,400,000

Explanation:

given data

common stock shares outstanding = 800,000

stock dividend = 30 %

new par value = $3

retained earnings account = $60,000,000

capital in excess of par = $13,600,000

current stock price = $40 per share

solution

we know that here stock dividend  declared  by 30%

so total share will be = 30% of common stock shares outstanding

share  = 30% ×  800,000

share =   240,000 shares  

and

Market value will be by current stock price is

market value = 240,000 ×  $40

market value = $9,600,000

so here

Capital in excess of par will  be

Capital in excess of par = market value - common stock shares outstanding  

Capital in excess of par =  $9,600,000  - $800,000

Capital in excess of par =  $8,880,000

and

New values will be for Capital in excess of par  

Capital in excess of par  = $13,600,000 + $8,880,000

Capital in excess of par =  $22,480,000

and

Retained Earnings will be

Retained Earnings  = $60,000,000 - $9,600,000

Retained Earnings = $50,400,000