Currently, DeWitt Company is under pressure from sharholders. DeWitt’s cash bala
ID: 2477031 • Letter: C
Question
Currently, DeWitt Company is under pressure from sharholders. DeWitt’s cash balance is $1,500,000. The stock is trading for $16 a share and the equity section of its balance sheet appears as shown in Table 14. To pacify investors, the company decided to offer a 10 percent stock dividend.
a. In Table 15, reconstruct the shareholders’ equity section of the DeWitt balance sheet to reflect the company paying a 10 percent stock dividend. An asterisk () marks the spaces to be filled.
b. iIndicate what the new price level is expected to be.
Before Repurchase The DeWitt Company equity account, December 31, 2013
SHAREHOLDER EQUITY
Common Stock ($5 par value; 1,000,000 shares) $5,000,000
Additional paid-in capital $5,000,000
Retained earnings $15,000,000
Total shareholders’ equity $25,000,000
Table 15 After Repurchase The DeWitt Company equity account, December 31, 2013
SHAREHOLDER EQUITY
Common Stock (* _______ par value; *__________ shares) *_________________
Additional paid-in capital *________________
Retained earnings *________________
Total shareholders’ equity *_________________
Explanation / Answer
Answer Shareholders Equity Common stock ($5 par value, 1100000 shares) $55,00,000 Additional paid in capital $61,00,000 Retained earnings $1,34,00,000 Total shareholders Equity $2,50,00,000 Working 10% stock dividend offered means that one share has been given for every 10 shares held by existing stockholders. Total common stock outstanding = 1000000 shares stock dividend offered = 10% * 1000000 shares = 100000 shares Current market price of stock = $16 per share Par value of stock = $5 per share Journal entry to be on stock dividend as under Account title Debit Credit Retained earnings $16,00,000 Common stock $5,00,000 Additional paid in capital $11,00,000 (10% stock dividend offered to existing stockholders @ $16 per share)
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