Question

#1) The owners’ equity accounts for Trans World International are shown here: Common stock ($1 par value) $ 85,000 Capital surplus 227,000 Retained earnings 750,000 ________________________________________ ________________________________________ ________________________________________ ________________________________________ Total owners’ equity $ 1,062,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Requirement 1: Assume Trans World stock currently sells for $28 per share and a stock dividend of 20 percent is declared. (a) How many new shares will be distributed? New shares issued (b) Show the new balance for each equity account. Common stock $ Capital surplus Retained earnings ________________________________________ ________________________________________ ________________________________________ ________________________________________ Total owners’ equity $ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Requirement 2: Now assume that instead Trans World declares a stock dividend of 24 percent. (a) How many new shares will be distributed? New shares issued (b) Show the new balance for each equity account. Common stock $ Capital surplus Retained earnings ________________________________________ ________________________________________ ________________________________________ ________________________________________ Total owners’ equity $ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ #2) The company with the common equity accounts shown here has declared a 13 percent stock dividend at a time when the market value of its stock is $43 per share. Common stock ($1 par value) $ 470,000 Capital surplus 1,555,000 Retained earnings 3,878,000 ________________________________________ ________________________________________ Total owners’ equity $ 5,903,000 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Required: Show the new equity account balances after the stock dividend distribution. Common stock $ Capital surplus Retained earnings ________________________________________ Total owners’ equity $ ________________________________________________________________________________ ________________________________________

Answer 1

Stock Dividend is the distribution of additional shares each shareholder in an amount proportional their current number of shares. There is no impact on the par value of the share as well as the total shareholders equity. When the Stock dividend is issued, "Retained Earnings' are debited based on the market values of the shares, "Common Stock" is credited by the par value of shares and amount above the par value is credited "Paid-in-Capital in excess of Par value of Common Stock"

Share outstanding [$85000/s1] Sock dividend@ 20% [85000 x 20%) Stock dividend value based Market value of share $28 Ans 1a 85,000 17,000 $476,000 Ans 1b Ent Particulars Retained Earnings Common Stock Capital Surplus To record stock divided Debit Credit $476,000 [85000 x $28] $17,000 [85000 x $28] 459,000 [85000 x $28] Particulars Common Stock ($1 par) Capital Surplus Retained Earnings Total Amount 5102,000 I85000+$17000] 5686,000 [227000$459000] $274,000 S750000 $47 $1,062,000 Share outstanding [$85000/s1] Sock dividend@ 24% [85000x24%) Stock dividend value based Market value of share $28 Ans 2a 85,000 20,400 $571,200 Ans 2b Ent Particulars Retained Earnings Common Stock Capital Surplus To record stock divided Debit Credit 5571,200 [85000 x $28] $20,400 [85000 x $28) $550,800 [85000 x $28] Particulars Common Stock ($1 par) Capital Surplus Retained Earnings Total Amount S105,400 IS85000+520400] $777,800 [227000 $550800] $178,800 [S750000 55712 $1,062,000

Ans #2 Share outstanding [$470000/$1] Sock dividend@ 13% [470000x13%) Stock dividend value based Market value of share $43 Ansa 470,000 61,100 $2,627,300 Ans bEnt Particulars Retained Earnings Common Stock Capital Surplus To record stock divided Debit Credit 52,627,300 [85000 x $28] $61,100 [85000 x $28] $2,566,200 [85000 x $28] Particulars Common Stock ($1 par) Capital Surplus Retained Earnings Total Amount $531,100 [$470000+$61100] 4,121,200 1555000 $2566200] 1,250,700 [S3878000 $26273 $5,903,000