Stock Dividends The Stockholders’ Equity category of Worthy Company’s balance sh

Question

Stock Dividends

The Stockholders’ Equity category of Worthy Company’s balance sheet as of January 1, 2016, appeared as follows:

The following transactions occurred during 2016:

Declared a 10% stock dividend to common stockholders on January 15. At the time of the dividend, the common stock was selling for $30 per share. The stock dividend was to be issued to stockholders on January 30, 2016.

Distributed the stock dividend to the stockholders on January 30, 2016.

Required:

1. Record the 2016 events. Indicate the effect on financial statement items by selecting "–" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

2. Develop the Stockholders' Equity category of Worthy Company's balance sheet as of January 31, 2016, after the stock dividend was issued.

What effect did those transactions have on total stockholders’ equity?

These transactions total stockholders' equity. They reclassified some equity from the category to the category.

Common stock, $10 par, 40,000 shares issued and outstanding $400,000 Additional paid-in capital 100,000 Retained earnings 400,000 Total stockholders’ equity $900,000

Explanation / Answer

Worthy Company Accounting Equation on 15th Jan,2016 Balance sheet Income Statement Assets= Liabilities + Stockholder's Equity + Revenue- Expenses Stock Dividend Distributable(40000*10%*$10) $                                             40,000.00 Additional Paid in Capital(40000*10%*$20) $                                             80,000.00 Retained Earnings(40000*10%*$30) $                                       -1,20,000.00 Accounting Equation on 30th Jan,2016 Balance sheet Income Statement Assets= Liabilities + Stockholder's Equity + Revenue- Expenses Common Stock $                                             40,000.00 Stock Dividend distributable $                                           -40,000.00 Worthy Company Partial Balance Sheet January 31st,2017 Stockholder's Equity Common Stock 44000 shares @$10 per share $               4,40,000.00 Additional Paid in Capital-Common Stock($100000+$80000) $               1,80,000.00 Retained Earnings($400000-$120000) $               2,80,000.00 Total Stockholder's Equity $               9,00,000.00

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