Question

Murphy's, Inc. has 30,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $10.00 per share. The balance sheet shows $69,000 in the capital in excess of par account, $30,000 in the common stock account, and $130,500 in the retained earnings account. The firm just announced a 12 percent (small) stock dividend. What will the balance in the capital in excess of par account be after the dividend?

O $105,000
O $96,000
O $97,800
O $101,400
O $98,100

Answer 1

After Murphy's, Inc. announced a 12 percent stock dividend, the balance in the capital in excess of par account will be $101,400. This accounts for the 3,600 new shares issued at a $1 par value with an existing market value of $10 per share.

The correct option, after the stock dividend, the balance in the capital in excess of par account will be $101,400.

Step-by-step explanation:

The question asks about the impact of a small stock dividend on the account balance for the capital in excess of par after Murphy's, Inc. has announced a 12 percent stock dividend. With 30,000 shares outstanding and a par value of $1.00 per share, the current market value being $10.00 per share, and a given amount of $69,000 in the capital in excess of par account, we need to calculate the new balance after the dividend.

First, we calculate the number of new shares to be distributed as a dividend: 30,000 shares * 12% = 3,600 new shares. The par value of these new shares is 3,600 * $1 = $3,600. The market value of the new shares prior to the dividend would be 3,600 * $10 = $36,000. Since each share has a par value of $1, the excess over par value for the new shares is $36,000 - $3,600 = $32,400.

Adding this to the existing capital in excess of par account gives us: $69,000 + $32,400 = $101,400. Therefore, the correct option, after the stock dividend, the balance in the capital in excess of par account will be $101,400.