The Western Pipe Company has the following capital section in its balance sheet.

Question

The Western Pipe Company has the following capital section in its balance sheet. Its stock is currently selling for $5 per share.

Common stock (35,000 shares at $2 par) $ 70,000

Capital in excess of par 70,000

Retained earnings 160,000

Total equity $ 300,000

The firm intends to first declare a 10 percent stock dividend and then pay a 15-cent cash dividend (which also causes a reduction of retained earnings). Show the capital section of the balance sheet after the first transaction and then after the second transaction. (Do not round intermediate calculations and round your answers to the nearest whole dollar.

After first transaction After stock dividend Common stock ? Capital excess of par ? Retained earnings ? Total Equity ?

Explanation / Answer

now,

after first transaction after stock dividend common stock (35,000 shares +10% =>38,500 shares @$2 par) $77,000 capital in excess of par (70,000 + 3500 shares of stock dividend * ($5 selliing price - $2 par value) =. (70,000 +(3500*3)) => 80,500 retained earnings (160,000 - (3500 shares * 5)) 142,500 total equity 300,000

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