The owners’ equity accounts for Octagon International are shown here: Common sto
ID: 2717935 • Letter: T
Question
The owners’ equity accounts for Octagon International are shown here: Common stock ($.60 par value) $ 37,500 Capital surplus 325,000 Retained earnings 718,120 Total owners’ equity $ 1,080,620 a-1 If Octagon stock currently sells for $20 per share and a 20 percent stock dividend is declared, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued a-2 Show the new equity account values. (Do not round intermediate calculations.) Common stock $ Capital surplus Retained earnings Total owners’ equity $ b-1 If instead Octagon declared a 25 percent stock dividend, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued b-2 Show the new equity account values. (Do not round intermediate calculations.) Common stock $ Capital surplus Retained earnings Total owners’ equity $
Explanation / Answer
a-1.
Divivdend declared = 20% * $37,500
= $7,500
No. of new shares = $7,500 / $20
= 375
a-2.
Common stock = $37,500 + $0.60 * 375
= $37,725
Capital surplus = $325,000 + ($20 - $0.60) * 375
= $332,275
Retained earnings = $718,120
Total owner's equity = $37,725 + $332,275 + $718,120
= $1,088,120
b-1.
Divivdend declared = 25% * $37,500
= $9,375
No. of new shares = $9,375 / $20
= 468.75
b-2.
Common stock = $37,500 + $0.60 * 468.75
= $37,781.25
Capital surplus = $325,000 + ($20 - $0.60) * 468.75
= $334,093.75
Retained earnings = $718,120
Total owner's equity = $37,781.25 + $334,093.75 + $718,120
= $1,089,995
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