Question

557 Instructions Compute the amount of total stockholders t he number of shares of capital stock outstand Ok Value per share following cach sucessive transaction. Organize your solution as three-column schedule with these separate come headlines (1) Total Stockholders Equity. Number of Shares Outstandine, and (3) Book Value per Sharetra wing is a summary of the transactions affecting the stockholders' equity of Dry Wall, Inc., during the current year. L012-8 BLEM 12.50 ring Statement of holders' Equity 47,000) 300,000 Prior period adjustment (net of income tax benefit ............ $ Issuance of common stock 20,000 shares of $1 par value capital stock at $15 per share..... Declaration and distribution of 10% stock dividend (15.000 shares, market price $17 per share) ..... Purchased 3.000 shares of treasury stock at $16... Reissued 1,000 shares of treasury stock at a price of $18 per share ....... Net income .......... .............. Cash dividends declared ($1 per share) ... ........................... 255,000 (48,000) 18,000 1.200,000 (163.000) Note: Parentheses indicate a reduction in stockholders' equity. Asterilicatesso change in total shareholders Instructions a. Prepare a statement of stockholders' equity for the year. Use the column headings and begin ning balances shown. (Notice that all additional paid-in capital accounts are combined into a single column.) Capital Stock ($1 par value) Additional Paid-in Capital Retained Earnings Treasury Stock Total Stockholders' Equity Balances, Jan. 1 $130,000 $1,170,000 $1.400.000 -0- $2,700.000 h. What was the overall effect on total stockholders equity of the 10 percent stock dividend of 15,000 shares? What was the overall effect on total stockholders' equity of the cash dividends declared? Do these two events have the same impact on stockholders' equity? Why or why not?

Answer 1

a)

	Capital stock($ 1 par value)	Additional paid in capital	Retained earnings	Treasury stock	Total stockholders equity
Balance Jan 1	130000	1170000	1400000	0	2700000
Prior period adjustment (net of tax benefit)			(47000)		(47000)
Issuance of common stock	20000*1=20000	280000			300000
Declaration of stock dividend	15000*1=15000	240000	(255000)		0
Purchase of treasury stoc				-48000	-48000
Reissue		2000		16000 [1000*16]	18000
Net income			1200000		1200000
cash dividend declared			(163000)		(163000)
Total	165000	1692000	2135000	-32000	3960000

b)

Stock dividend is a form of dividend where dividend is declared in form of shares where cash dividend is a form of dividend where dividend is declared and paid in form of cash .

stock dividend has no effect on overall stockholders equity (as can be seen in above table). The only effect is that Paid in capital is increased and retained earning is decreased by amount of stock dividend.

Cash dividend results in decreasing the stockholders equity (as can be seen in above table)by amount of cash dividend declared and paid.

So the effect of both dividend on stockholders equity is different as one is capitalization of dividend whereas other is cash payment of dividend.