Jackson entreprise has the folloing capital (equity) accounts: Common stock ( $1

Question

Jackson entreprise has the folloing capital (equity) accounts:

Common stock ( $1 par; 100,000 shares outstanding)                        $100,000

Additional paid in capital                                                                200,000

retained eanings                                                                             225,000

The board of directors has declared a 20% stock dividend on Jan 1 and a $0.25 cash dividend on March 1. What changes occur in the capital accounts after each transaction if the price of the stock is $4?

Explanation / Answer

dividend paid per share on Jan 1,on par value of $1 = 20% = 1*0.20 = 0.20 ($) dividend paid per share on March 1, = $ 0.25 Total dividend paid per share = 0.20 + 0.25 = 0.45 $ Retained earning increase per share = Earning per share - dividend = EPS - 0.45 Retained earning increase total = (EPS - 0.45)*100000 = Total earning - 45000 Price per share = $ 4 = net worth per share Total net worth = 4*100000 = 400000 ($) New retained earning = 400000 - 100000 - 200000 = 100000 ($) decrease in retained earning = 225000 - 100000= 125000 ($) so, Total earning - 45000 = -125000 ($) Total earning = 45000 -125000 = -80000 ($) Hence, Jackson entreprise will have folloing capital (equity) accounts: Common stock ( $1 par; 100,000 shares outstanding) $100,000 Additional paid in capital 200,000 retained earnings 100,000 Total 400,000

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