Question

On November 1, 2017, Kalen Corporation’s stockholders’ equity section is as follows: Common stock, $10 par value $600,000 Paid-in capital in excess of par value—Common Stock 180,000 Retained earnings 200,000 Total stockholders’ equity $980,000 On November 1, Kalen declares and distributes a 15% stock dividend when the fair value of the stock is $16 per share.Indicate the balances in the stockholders' equity accounts after the stock dividend has be:a. Common Stock _________.b. Paid In Capital In Excess of Par Value _________.c. Retained Earnings _________.d. Total Stockholders' Equity _________.

Answer 1

Answer:

The Answer is given below

Explanation:

a. Common Stock $600,000

b. Paid in capital  in excess of par value  $180,000

c. Retained Earnings= ($200,000-($600,000*15%))=$110,000

d. Total Stockholders' Equity= $180,000+$600,000+$110,000=$890,000

Please note that dividend is paid on par value which is $10*15%=1.5 per share.

Total shares*dividend per share=total dividend paid

1.5*($600,000/10)=$90,000

or $600,000*15%=$90,000

Therefore dividend of $90,000 is deducted from retained earnings

Answer 2

Answer:

Common stock is $690,000

Paid-in capital in excess of par value is $234,000

Retained earnings  is $56,000

Total stockholders's equity is $980,0000

Explanation:

Stock dividend in unlike cash dividend because in the former dividends are paid in form free issue of shares to shareholders and in the latter actual cash is paid as dividends.The former is opted for when  the retained earnings from dividends is paid from is required for alternative uses other than payment of dividends such as investment in capital projects, as retained earnings is the cheapest form of finance at the business disposal.

The stock dividends to be issued =15%*$600,000/$10

                                                         =9000 more shares

The value of stock dividend using fair value of $16 per share,is broken down as follows:

Dr Retained earnings($16*9000)       $144,000

Cr Common stock ($10*9000)                          $90,000

Cr Paid-in capital in excess of par($6*9000)    $54000

Hence:

Common stock=($600,000+$90,000)=$690,000

Paid-in capital in excess of par value  

                   ($180,000+$54,000)        =$234,000

Retained earnings

($200,000-$144,000)                           =$56,000

Total stockholders's equity                   $980,000