Question

The owners' equity accounts for Vidi International are shown here: Common stock ($.50 par value) Capital surplus Retained earnings $ 38,000 330,000 728,120 Total owners' equity $1,096,120 a-1 If the company's stock currently sells for $20 per share and a 10 percent stock dividend is declared, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued

Answer 1

Original Shares Outstanding = Value of Common Stock / Par Value per share

= $38,000 / $0.50 = 76,000

a-1). New Shares Outstanding = Original Shares Outstanding * Stock Dividend %

= 76,000 * 0.10 = 7,600

a-2). Par value of the new shares = $0.50

Capital surplus per share = Current share price - Par Value = $20 - $0.50 = $19.50

Capital Surplus on new shares = Capital surplus per share * New Shares Outstanding

= $19.50 * 7,600 = $148,200

Particulars	Amount
Common Stock ($0.50 par value) [0.50 * (76,000+7,600)]	$41,800
Capital Surplus [330,000 + 148,200]	$478,200
Retained Earnings	$728,120
Total Owners' equity	$1,096,120

b-1). New Shares Outstanding = Original Shares Outstanding * Stock Dividend %

= 76,000 * 0.20 = 15,200

a-2). Par value of the new shares = $0.50

Capital surplus per share = Current share price - Par Value = $20 - $0.50 = $19.50

Capital Surplus on new shares = Capital surplus per share * New Shares Outstanding

= $19.50 * 15,200 = $296,400

Particulars	Amount
Common Stock ($0.50 par value) [0.50 * (76,000+15,200)]	$45,600
Capital Surplus [330,000 + 296,400]	$626,400
Retained Earnings	$728,120
Total Owners' equity	$1,400,120