The stockholders’ equity section of Marigold Corp.’s balance sheet consists of common stock ($7 par) $959,000 and retained earnings $410,000. A 10% stock dividend (13,700 shares) is declared when the market price per share is $18. (a) Show the before-and-after effects of the dividend on the components of stockholders’ equity.

Find below the pre stock dividend and post stock dividend effects.

Explanation:

Before the declaration of stock dividend the equity section of the balance sheet would look thus:

Common stock ($7 par)                  $959,000

Paid in capital in excess of par            -

Total paid in capital                         $959,000

Retained earnings                           $410,000

Total shareholders' equity              $1,369,000

However,upon declaration of the stock dividend which would be funded from retained earnings by reducing the retained earnings and increasing the common stock as well as paid in capital in excess of par.

Common stock ($7 par)($7*13,700)+$959,000           $1,054,900                  

Paid in capital in excess of par($18-$7)*13,700            $150,700

Total paid in capital                                                        $1,205,600

Retained earnings    $410,000-($18*13,700)                  $163,400

Total shareholders' equity                                              $ 1,369,000

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