Question

On June 30, Sharper Corporation’s stockholders' equity section of its balance sheet appears as follows before any stock dividend or split. Sharper declares and immediately distributes a 50% stock dividend.
Common stock—$10 par value, 120,000 shares authorized,
70,000 shares issued and outstanding $700,000
Paid-in capital in excess of par value, common stock 300,000
Retained earnings 710,000
Total stockholders’ equity $1,710,000
1) Prepare the updated stockholders' equity section after the distribution is made.
2) Compute the number of shares outstanding after the distribution is made.

Answer 1

Answer:

Find below the equity section of the balance sheet

Number of shares outstanding is now 105,000

Explanation:

The equity section of the balance is an excerpt of the entire balance sheet containing the worth of equity stockholders' investment in the business which comprises of the common stock,paid in capital in excess of par as well as the retained earnings.

Equity section of Sharper Corporation balance sheet :

Common stock-$10 par value,120,000 authorized,105,000 issued and outstanding ($700,000+$350,000)                                                    $1,050,000

Paid in capital in excess of par                                                             $300,000

Retained earnings ($710,000-$350,000)                                             $360,000

Total stockholders' equity                                                                      $1,710,000

The stock dividend of 50% means that 35,000 more shares(50%*70,000 shares are given to shareholders for free,funded by retained earnings by debiting retained earnings with $350,000 (35,000*$10) and crediting same to common stock

total number of shares outstanding=70,000+35000=105000