The company with the common equity accounts shown here has declared a 5 percent
ID: 2751697 • Letter: T
Question
The company with the common equity accounts shown here has declared a 5 percent stock dividend when the market value of its stock is $25 per share. What is the capital surplus account after the 5 percent stock dividend?
Common stock ($1 par value)
$ 460,000
Capital Surplus
1,340,000
Retained earnings
3,427,000
Total owners’ equity
$ 5,227,000
a) $1,892,000
b) $1,480,000
c) $1,218,000
d) $1,611,000
e) $1,056,000
Common stock ($1 par value)
$ 460,000
Capital Surplus
1,340,000
Retained earnings
3,427,000
Total owners’ equity
$ 5,227,000
Explanation / Answer
Answer- Capital Surplus=$1,892,000
Total amount of dividend =460000 x 5% x 25 = $575000
Dr Retained Earnings$ 575000 (460000 x 5% x 25)
Cr Capital Surplus $552000(460000 x 5% x 24)
Cr Common Stock $23000 (460000 x 5% x 1)
Common stock 460,000 + 23000 = $483000
Capital surplus 1,340,000 + 552000 = $1892000
Retained earnings 3427000 - 575000 = $2852000
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Total owners’ equity $5227000
When a stock dividend is declared, total equity remains the same. Money is just being moved from one equity account to another.