Question

On June 30, Sharper Corporation’s stockholders' equity section of its balance sheet appears as follows before any stock dividend or split. Sharper declares and immediately distributes a 50% stock dividend.

Common stock—$10 par value, 120,000 shares authorized, 90,000 shares issued and outstanding $ 900,000
Paid-in capital in excess of par value, common stock 400,000
Retained earnings 760,000
Total stockholders’ equity $ 2,060,000
(1) Prepare the updated stockholders' equity section after the distribution is made.
(2) Compute the number of shares outstanding after the distribution is made.

Answer 1

Answer:

Sharper Corporation's Stockholders' Equity Section of Balance Sheet:

Common Stock:

Authorized Capital 120,000, $10 par value $0

Issued capital 90,000 at $10 par = $900,000

APIC = $400,000

Retained Earnings = $310,000

Total Stockholders' Equity = $1,610,000

2 Number of shares outstanding after the dividend distribution is 90,000 shares.

Explanation:

1. The dividend per share was calculated as follows:

50% of $10 = $5 per share

Total dividends = $5 x 90,000 = $450,000.

2. The Retained Earnings changed from $760,000 to $310,000 ($760,000 - $450,000).  Dividends are paid out of retained earnings.

3. The number of shares outstanding after the distribution of dividends did not change.  It could change if there were a stock split or some shares were repurchased under Treasury Stock.