Question

The stockholders’ equity section of Maley Corporation’s balance sheet consists of common stock ($8 par) $992,000 and retained earnings $418,100. A 10% stock dividend (12,400 shares) is declared when the market price per share is $16.

(a) Show the before-and-after effects of the dividend on the components of stockholders’ equity.

(b) Show the before-and-after effects of the dividend on the shares outstanding.

Answer 1

Concepts and reason

Accounting: Accounting is a process of recording the transactions, classifying them in a specific manner, and is the process of summarizing and analyzing to interpret the results. It is a process of preserving the accounts.

Financial accounting is a process of preparing reports to provide all financial information to both the internal and external users of an organization. The financial statements that are prepared under the financial accounting are examined by an independent certified public accountants, at the year-end, who would express their opinion on the fairness of the reports shown by a company.

Fundamentals

Stockholders’ equity: A shareholder’s claim on the assets of a company is known as stockholders’ equity, which are assets minus liabilities. This is also a permanent account because these balances are carried forward from one financial year to the other. Stockholders’ equity is also called as owners’ equity.

Dividends: Dividends are the divisible profits of a company that are issued to the shareholder for the portion of share they have purchased. It should be through the way of purchase in the company. It is an expense for the company.

Paid-in capital in excess of par value, Common stock: It is an excess amount paid by an investor over the par value of the share, and it is shown on the equity section of the balance sheet.

Retained earnings: The amount of earnings undistributed as dividends to the stockholders is termed as retained earnings.

Outstanding shares: Outstanding shares are the shares that held by stockholders being issued by the company.

a)

Determine the before and after effects of the dividend on the components of stockholders equity:

Therefore, the total stockholders’ equity of before and after dividend are $1,410,000.

b)

Calculate the outstanding shares for before and after dividend:

Therefore, the outstanding share for before dividend is $124,000 and after dividend is $136,400.

Working notes:

Calculation is given below:

Ans: Part a

The total stockholders’ equity of before and after dividend are $1,410,000.

Part b

The outstanding share for the before dividend is $124,000 and the after dividend is $136,400.