United Equipment Corp. shows the following capital accounts before a 10 percent stock dividend. The firm’s shares have a market price of $20. Show the revised capital accounts after the 10 percent stock dividend.

Question

United Equipment Corp. shows the following capital accounts before a 10 percent stock dividend.

Common stock (200,000 shares at $5 par)	$1,000,000
Capital in excess of par	600,000
Retained earnings	2,400,000
Net worth	$4,000,000

The firm’s shares have a market price of [latex]\$20[/latex]. Show the revised capital accounts after the 10 percent stock dividend.

Accepted Answer

Revised capital accounts after the 10 percent stock dividend.

Common stock (200,000 shares at $5 par)	$1,000,000
Capital in excess of par	600,000
Retained earnings	2,400,000
Net worth	$4,000,000

∗ 20,000 more shares are added to common stock.

† Added capital in excess of par is equal to the number of new shares times the (market price minus par value).

[latex] 20,000 imes(\$ 20-\$ 5)=20,000 imes \$ 15=\$ 300,000 [/latex]

This value is added to the initial value of capital in excess of par to arrive at total capital in excess of par.

[latex] \$ 300,000+600,000=\$ 900,000 [/latex]

‡ The retained earnings shown above is equal to the initial retained earnings value minus the addition to common stock of [latex]\$ 100,000[/latex] and the addition to 'capital in excess of par' of [latex]\$ 300,000[/latex].

[latex] \$ 2,400,000-\$ 100,000-\$ 300,000=\$ 2,000,000 [/latex]

Question 18.1: United Equipment Corp. shows the following capital accounts ...

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