ACC 226
Axia College of University of Phoenix (UoP)
Financial Accounting
Larson, K. D., Wild, J. J., & Chiappetta B. (2005). Fundamental accounting principles (17th ed.)
ACC 226 Solution
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Exercise 13-7 (E13-7) On June 30, 2005, Scizzory Corporation’s common stock is priced at $31 per share before any stock dividend or split, and the stockholders’ equity section of its balance sheet appears as follows:
Common stock—$10 par value, 60,000 shares
authorized, 25,000 shares issued and outstanding . . . . . . $250,000
Contributed capital in excess of par value, common stock . . 100,000
Total contributed capital . . . . . . . . .. . . . . . . . . . 350,000
Retained earnings . . . . . . . . . . . . . . . . . . . .. . . 330,000
Total stockholders’ equity . . . . . . . . .. . . . . . . . . $680,000
1. Assume that the company declares and immediately distributes a 100% stock dividend. This event is recorded by capitalizing retained earnings equal to the stock’s par value. Answer these questions about stockholders’ equity as it exists after issuing the new shares:
a. What is the retained earnings balance?
b. What is the amount of total stockholders’ equity?
c. How many shares are outstanding?
2. Assume that the company implements a 2-for-1 stock split instead of the stock dividend in part 1. Answer these questions about stockholders’ equity as it exists after issuing the new shares:
a. What is the retained earnings balance?
b. What is the amount of total stockholders’ equity?
c. How many shares are outstanding?
3. Explain the difference, if any, to a stockholder from receiving new shares distributed under a large stock dividend versus a stock split.
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