Question

The stockholders’ equity section of Jun Company’s balance sheet as of April 1 follows. On April 2, Jun declares and distributes a 10% stock dividend. The stock’s per share market value on April 2 is \(20 (prior to the dividend). Prepare the stockholders’ equity section immediately after the stock dividend.

Common stock—\)5 par value, 375,000 shares

authorized, 200,000 shares issued and outstanding . . . . . . . . . . . . . \(1,000,000

Paid-in capital in excess of par value, common stock . . . . . . . . . . . . . . . 600,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)2,433,000

Short answer

Total shareholder’s equity before dividend$2,433,000 and after dividend $2,433,000.

Step-by-step solution

Meaning of Dividend

A portion of the company's earnings is paid to the shareholders after being decided by the company's directors is known as a dividend.

Step 2:Stockholders’ equity section immediately after the stock dividend

Stockholders’ Equity	Before Dividend	Date of Declaration	Date of Payment	After Dividend
Common stock—$5 par value, 375,000 sharesauthorized, 200,000 shares issued and outstanding	$1,000,000	-	$100,000	$ 1,100,000
Common Stock Dividend Distributable	-	$ 100,000	($100,000)	-
Paid-in capital in excess of par value, common stock	600,000	300,000	-	900,000
Retained earnings	833,000	(400,000)	-	(433,000)
Total stockholders’ equity	$2,433,000	-		$ 2,433,000

Working note:

Calculation of dividend payable

$\begin{array}{c}\mathbf{D}\mathbf{i}\mathbf{v}\mathbf{i}\mathbf{d}\mathbf{e}\mathbf{n}\mathbf{d}\mathbf{p}\mathbf{a}\mathbf{y}\mathbf{a}\mathbf{b}\mathbf{l}\mathbf{e}\mathbf{=}\mathbf{(}\mathbf{10}\mathbf{\%}\mathbf{\times }\mathbf{200}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{\$}\mathbf{5}\mathbf{)}\\ \mathbf{=}\mathbf{\$}\mathbf{100}\mathbf{,}\mathbf{000}\end{array}$

Calculation of paid in capital in excess of par value

$\begin{array}{c}\mathbf{P}\mathbf{a}\mathbf{i}\mathbf{d}\mathbf{i}\mathbf{n}\mathbf{c}\mathbf{a}\mathbf{p}\mathbf{i}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{i}\mathbf{n}\mathbf{e}\mathbf{x}\mathbf{c}\mathbf{e}\mathbf{s}\mathbf{s}\mathbf{o}\mathbf{f}\mathbf{p}\mathbf{a}\mathbf{r}\mathbf{v}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\mathbf{=}\mathbf{10}\mathbf{\%}\mathbf{\times }\mathbf{O}\mathbf{u}\mathbf{t}\mathbf{s}\mathbf{t}\mathbf{a}\mathbf{n}\mathbf{d}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{s}\mathbf{h}\mathbf{a}\mathbf{r}\mathbf{e}\mathbf{s}\mathbf{\times }\mathbf{(}\mathbf{M}\mathbf{a}\mathbf{r}\mathbf{k}\mathbf{e}\mathbf{t}\mathbf{p}\mathbf{r}\mathbf{i}\mathbf{c}\mathbf{e}\mathbf{-}\mathbf{P}\mathbf{a}\mathbf{r}\mathbf{v}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\mathbf{)}\\ \mathbf{=}\mathbf{10}\mathbf{\%}\mathbf{\times }\mathbf{200}\mathbf{,}\mathbf{000}\mathbf{s}\mathbf{h}\mathbf{a}\mathbf{r}\mathbf{e}\mathbf{s}\mathbf{\times }\mathbf{(}\mathbf{\$}\mathbf{20}\mathbf{-}\mathbf{\$}\mathbf{5}\mathbf{)}\\ \mathbf{=}\mathbf{\$}\mathbf{300}\mathbf{,}\mathbf{000}\end{array}$

Journal entry

Date	Account and Explanation	Debit ($)	Credit($)
Apr 02	Retained Earnings	400,000
	Common Stock Dividend Distributable		100,000
	Paid-in capital in excess of par value, common stock		300,000