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Stock Dividend

A company with a stock price of $50.00 and the following equity accounts issues a 5% stock dividend. How will the equity accounts change and what will the new stock price be?

Common stock @ $1 par value $200,000<br>
Additional paid-in capital $1,800,000<br>
Retained income $3,000,000<br>
Stockholder's equity $5,000,000<br><br>

Stock price $50.00<br>

Solution Preview

New common stock value
The first step is to calculate the number of shares outstanding. This can be accomplished by dividing the common stock value by the par value ($1 in this case) to get the total number of shares outstanding. Next you can calculate the increase in the number of shares outstanding by multiplying the percentage increase by the number of shares outstanding. Add this increase in the number of shares to the shares that were already outstanding to get the new number of shares outstanding. To get the common stock value after the stock dividend you multiply the new number of shares outstanding by the par value ($1 in this case) of the stock.
Number of ...

Solution Summary

This problem looks at the effects of a stock dividend on a company's equity accounts.

$2.19