Question

The stockholders' equity of TVX Company at the beginning of the day on February 5 follows.

Common stock—$10 par value, 150,000 shares
authorized, 62, 000 shares issued and outstanding $620,000
Paid—in capital in excess of par value, common stock 423,000
Retained earnings 552,000
Total stockholders ' equity 1595,000

On February 5, the directors declare a 2% stock dividend distributable on February 28 to the February 15 stockholders of record. The stock's market value is $31 per share on February 5 before the stock dividend.

Required:
Prepare the stockholders' equity section after the stock dividend is distributed. (Assume no other changes to equity.)

Answer 1

TVX Company

Stockholders Equity Section of the Balance Sheet, February 28

Common stock $632,400

Paid in capital in excess of par value, Common stock $449,040

Retained earnings $513,560

Total Stockholders Equity $1,595,000

Workings

Common Stock

= Common Stock + Dividends Declared

= 620,000 + ( 2% * 62,000 shares * $10 par value)

= 620,000 + 12,400

= $632,400

Paid in capital in excess of par value, Common stock

Dividends were declared based on current market value of $31 not par value of $10 so the differnce will be catered for here.

= Balance + Dividends Declared

= 423,000 + (2% * 62,000 * $21 which is differnce between par value and market value)

= 423,000 + 26,040

= $449,040

Retained earnings

= Retained Earnings - Dividends distributed

= 552,000 - (2% * 62,000 * $31)

= 552,000 - $38,440

= $513,560