Question

On January 1, Key Corporation had 2,000,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 20% stock dividend. Market value of the stock was $15 per share. As a result of this event,

a) Key's Paid-in Capital in Excess of Par account increased $2,000,000.
b) Key's total stockholders' equity was unaffected.
c) Key's Stock Dividends account increased $6,000,000.
d) All of these answer choices are correct.

Answer 1

d) All of these answer choices are correct.

Step-by-step explanation:

The dollar amount of stock dividends declared is computed thus:

Stock dividends declared=outstanding shares*market price per share*stock dividend rate

stock dividends declared=2,000,000*$15*20%=$6,000,000

Hence, option C is correct since stock dividends account increased by $6,000,000

Besides, the amount to be credited to paid-in capital in excess of par is computed thus:

Paid-in Capital in Excess of Par=amount of stock dividends-par value of stocks dividends

par value of stocks dividend=2,000,000*$12*20%=$4,000,000

Paid-in Capital in Excess of Par=$6,000,000-$4,000,000=$2,000,000

The double entries would include a debit of $6,000,000 to retained earnings while common stock and paid-in capital in excess of par are credited with $4,000,000 and $2,000,000 respectively, as a result, the total stockholders equity was unaffected since retained earnings where the stocks dividends were paid is part of stockholders' equity