Question

The stockholders’ equity section of Jun Company’s balance sheet as of April 1 follows. On April 2, Jun declares and distributes a 15% stock dividend. The stock’s per share market value on April 2 is $10 (prior to the dividend). Common stock—$5 par value, 465,000 shares authorized, 245,000 shares issued and outstanding $ 1,225,000 Paid-in capital in excess of par value, common stock 580,000 Retained earnings 878,000 Total stockholders' equity $ 2,683,000 Prepare the stockholders’ equity section immediately after the stock dividend.

Answer 1

Answer:

a stock dividend does not increase or decrease total stockholders' equity, it just increases some accounts and decreases others.

total amount of the dividend = 245,000 stocks x $10 x 15% = $367,500

the par value of the dividend = 245,000 stocks x $5 x 15% = $183,750

additional paid in capital of the dividend = $183,750

the journal entry to record the dividend distribution:

Dr Retained earnings 367,500

    Cr Common stock 183,750

    Cr Additional paid in capital 183,750

The stockholders' equity section:

Common stock $1,225,000 + $183,750 = $1,408,750

Paid in capital in excess of par value $580,000 + $183,750 = $763,750

Total contributed capital = $2,172,500

Retained earnings = $878,000 - $367,500 = $510,500

Total stockholders' equity = $2,172,500 + $510,500 = $2,683,000