Question

CH13 Graded Written Homework Problem 1 In some cases, companies elect to pay dividends to stockholders in the form of additional shares of stock instead of cash. A stock dividend is normally declared only on common stock and issued to common stockholders. An analysis of Cheerios, Inc.'s common stock is as follows: Shares authorized Shares issued Shares outstanding Number of Common Shares 450,000 325,000 310,000 On February 1, Cheerios, Inc. declared a 8% stock dividend for its common stockholders. The stock dividend will be distributed on March 1 for holders of record on February 16. Cheerios, Inc.'s common stock has a par value of $2 per share. Complete the table to reflect the correct number of common shares in the company after the stock dividend is distributed. (Hint: Remember, the number of shares declared (and distributed) are calculated using outstanding shares because only outstanding shares receive dividends.) Number of Common Shares Shares authorized Shares issued Shares outstanding

Answer 1

	Number of Common Shares
Shares Authorized	450,000
Shares Issued	325,000
Shares Outstanding	334,800

Date	Account Titles	Debit	Credit
		$	$
Feb 1	Retained Earnings ( 24,800 shares @ $ 9 )	223,200
	Common Stock Dividend Distributable ( 24,800 shares @ $ 2)		49,600
	Paid-in Capital in Excess of Par: Common Stock		173,600
Mar 1	Common Stock Dividend Distributable	49,600
	Common Stock		49,600

	Balance before Stock Dividend	Balance after Stock Dividend
Common Stock	$ 650,000	$ 699,600
Paid-in Capital in Excess of Par: Common Stock	1,625,000	1,798,600
Retained Earnings	3,000,000	2,776,800
Treasury Stock	(60,000)	(60,000)
Total Stockholders Equity	$ 5,215,000	$ 5,215,000

Cheerios Inc. paid $ 4 per share for the treasury stock.

A stock dividend does not have any effect on the company's total assets.

After the stock dividend, Red would own 13,392 shares, which represents 4 percent  the new total shares outstanding.