Question

Stock dividend: Firm Columbia Paper has the following stockholders equity account. The firm's common stock has a current market price of $30 per share. P14-9 $100,000 $20,000 $280,000 $100,000 $500,000 Preferred stock Common stock (10,000 shares at $2 par) Paid-in capital in excess of par Retained earnings Total stockholders' equity a. Show the effects on Columbia of a 5% stock dividend. b. Show the effects of (1) a 10% and (2) a 20% stock dividend. c. In light of your answers to parts a and b, discuss the effects of stock dividends on stockholders' equity

Answer 1

SOLUTION:

PART-A
Preferred stock	$100,000
Common Stock (10,000 shares * $2 + 500 shares * $2)	$21,000
Paid-in capital in excess of par ($28 *10k + $28*500)	$294,000
Retained Earnings	$85,000
Total stockholders’ equity	$500,000
PART-B
At 10% stock dividend
Preferred stock	$100,000
Common Stock (10,000 shares * $2 + 1,000 shares * $2)	$22,000
Paid-in capital in excess of par ($28 *10k + $28*1000)	$308,000
Retained Earnings	$70,000
Total stockholders’ equity	$500,000
At 20% stock dividend
Preferred stock	$100,000
Common Stock (10,000 shares * $2 + 2,000 shares * $2)	$24,000
Paid-in capital in excess of par ($28 *10k + $28*2000)	$336,000
Retained Earnings	$40,000
Total stockholders’ equity	$500,000
PART-C
The dividends on stock does NOT impact stockholder's equity.