Question

On January 1, Collins Corporation had 800,000 shares of $10 par value common stock outstanding. On March 31, the company declared a 15% stock dividend. Market value of the stock was $15/share. As a result of this event,

Collins' total stockholders' equity was unaffected.

Collins' Paid-in Capital in Excess of Par account increased $600,000.

Collins' Stock Dividends account increased $1,800,000.

All of the above.

Answer 1

Total Stockholders' equity was affected.

Step-by-step explanation:

Stock dividend refers to distributing shares free of cost among the existing shareholders. Such a dividend does not result in resources flowing out of the entity but merely reassign amounts from retained earnings to other equity accounts. Thus, such a dividend does not affect the total equity of the stockholders. This can be seen through the following entry,

Retained Earnings $1,800,000 Dr

Common Stock, at par $1,200,000 Cr

Paid in Capital in excess

of par, Common Stock $600,000 Cr

The above transaction shows that we just redistributed the reserves by reducing retained earning by the value of stock dividend 1800000 [( 800000*0.15) * $15] and adding it to the Common Stock 1200000 [(800000*0.15) * 10] and to paid in capital in excess of par 600000 [(800000*0.15) * 5].