Question

Malea Liberty has 800,000 common stock shares outstanding. It has decided to declare a 30 percent stock dividend. The new par value is the same as the original par value, $3. Before the declared dividend, the retained earnings account was $60,000,000 and capital in excess of par was $13,600,000. The current stock price is $40 per share. Calculate the new values for the following items:
a. Capital in excess of par $:______
b. Retained earnings:________

Answer 1

Answer:

Retained Earnings New Value = 50,400,000

Capital in excess of par New Value = 22,480,000

Explanation:

Declared 30% stock dividend

80,0000 shares at 30% = (30/100) x 80000 = 2,40,000 shares

Market value = shares x stock price = 240000 x 40 = 9,600,000

Stock dividend transferred from retained earnings to following accounts :-

• Common stock dividend = 7,20,000
• Capital in excess of par = 8,880,000

New Values :-

• Retained Earnings = old - transferred amount = 60,000,000 - 9,600,000 = 50,400,000
• Capital in excess of par = old + transferred amount = 13,600,000 + 8,88,0000 = 22,480,000