Question

Samuel's has 42,000 shares of stock outstanding with a par value of $1 per share and a market price per share of $41. The balance sheet shows $1,358,000 in the capital in excess of par account and $2,212,500 in the retained earnings account. The firm just announced a stock dividend of 50 percent. What is the value of the capital in excess of par account after the dividend

Answer 1

Answer:

$2,198,000

Explanation:

The computation of the value of the capital in excess of par account after the dividend is shown below:

Number of shares of stock outstanding = 42,000 shares

Stock dividend percentage = 50%

Now the new shares would be

= 42,000 × 50%

= 21,000 shares

Capital in excess of par value would be

= $41 - $1

= $40

For 21,000 shares, the paid in capital in excess is

= 21,000 shares × $40

= $840,000

And, the capital in excess as per the balance sheet is $1,358,000

Now the value of the capital in excess of par after the dividend is

= $1,358,000 + $840,000

= $2,198,000