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# Equity Accounts and Stock Dividends

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19-2: EXCEL: Stock Dividends: The owners' equity accounts for Hexagon International are shown here:
Common stock (\$1 par value) \$20,000
Capital surplus 210,000
Retained earnings 735,300
Total owners' equity \$965,300

a. If Hexagon stock currently sells for \$48 per share and a 10 percent stock dividend is declared, how many new shares will be distributed? Show how the equity accounts would change.

b. If Hexagon declared a 25 percent stock dividend, how would the accounts change?
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19-4: EXCEL: Stock Splits and Stock Dividends. Roll Corporation (RC) currently has 260,000 shares of stock outstanding that sell for \$78 per share. Assuming no market imperfections or tax effects exist, what will the share price be after:

a. RC has a five-for-three stock split?
b. RC has a 15 percent stock dividend?
c. RC has a 42.5 percent stock dividend?
d. RC has a four-for-seven reverse stock split?
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20-5: The St. Anger Corporation needs to raise \$35 million to finance its expansion into new markets. The company will see new shares of equity via a general cash offering to raise the needed funds. If the offer price is \$31 per share and the company's underwriters charge an 8 percent spread, how many shares need to be sold?
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20-6: EXCEL: Calculating Flotation Costs: In the previous problem if the SEC filing fee and associated administrative expenses of the offering are \$900,000, how many shares need to be sold?
________________________________________

21-7: EXCEL: Super Sonics Entertainment is considering buying a machine that costs \$435,000. The machine will be depreciated over five years by the straight-line method and will be worthless at that time. The company can lease the machine with year-end payments of \$107,500. The company can issue bonds at a 9 percent interest rate. If the corporate tax rate is 35 percent, should the company buy or lease?

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#### Solution Summary

This posting shows how the equity accounts would change.

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## Financial Accounting

Please see the attached file for full problem description.

100. Which of the following is not a significant date with respect to dividends?
a. The declaration date
b. The incorporation date
c. The record date
d. The payment date
101. On the dividend record date,
a. a dividend becomes a current obligation.
b. no entry is required.
c. an entry may be required if it is a stock dividend.
d. dividends payable is debited.
102. Which of the following statements regarding the date of a cash dividend declaration is not accurate?
a. The dividend can be rescinded once it has been declared.
b. The corporation is committed to a legal, binding obligation.
c. The board of directors formally authorizes the cash dividend.
d. A liability account must be increased.
103. Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections:
Total Assets Total Liabilities Total Stockholders' Equity
a. Increase Decrease No change
b. No change Increase Decrease
c. Decrease Increase Decrease
d. Decrease No change Increase
104. Which of the following statements about dividends is not accurate?
a. Many companies declare and pay cash quarterly dividends.
b. Low dividends may mean high stock returns.
c. The board of directors is obligated to declare dividends.
d. A legal dividend may not be a feasible one.
105. The cumulative effect of the declaration and payment of a cash dividend on a company's balance sheet is to
a. decrease current liabilities and stockholders' equity.
b. increase total assets and stockholders' equity.
c. increase current liabilities and stockholders' equity.
d. decrease stockholders' equity and total assets.
106. The declaration and distribution of a stock dividend will
a. increase total stockholders' equity.
b. increase total assets.
c. decrease total assets.
d. have no effect on total assets.
107. Cole Inc. has 1,000 shares of 6%, \$100 par value, cumulative preferred stock and 50,000 shares of \$1 par value common stock outstanding at December 31, 2003. What is the annual dividend on the preferred stock?
a. \$60 per share
b. \$6,000 in total
c. \$600 in total
d. \$.60 per share
108. Baker Inc. has 10,000 shares of 6%, \$100 par value, cumulative preferred stock and 100,000 shares of \$1 par value common stock outstanding at December 31, 2003. If the board of directors declares a \$50,000 dividend, the
a. preferred shareholders will receive 1/10th of what the common shareholders will receive.
b. preferred shareholders will receive the entire \$50,000.
c. \$50,000 will be held as restricted retained earnings and paid out at some future date.
d. preferred shareholders will receive \$25,000 and the common shareholders will receive \$25,000.
109. Baden Inc. has 5,000 shares of 8%, \$100 par value, noncumulative preferred stock and 20,000 shares of \$1 par value common stock outstanding at December 31, 2003. There were no dividends declared in 2002. The board of directors declares and pays a \$50,000 dividend in 2003. What is the amount of dividends received by the common stockholders in 2003?
a. \$0.
b. \$40,000.
c. \$50,000.
d. \$10,000.
110. Kiley Inc. has 2,000 shares of 6%, \$50 par value, cumulative preferred stock and 50,000 shares of \$1 par value common stock outstanding at December 31, 2002, and December 31, 2003. The board of directors declared and paid a \$4,000 dividend in 2002. In 2003, \$20,000 of dividends are declared and paid. What are the dividends received by the preferred and common shareholders in 2003?
Preferred Common
a. \$12,000 \$8,000
b. \$10,000 \$10,000
c. \$8,000 \$12,000
d. \$6,000 \$14,000
111. The board of directors must assign a per share value to a stock dividend declared that is
a. greater than the par or stated value.
b. less than the par or stated value.
c. equal to the par or stated value.
d. at least equal to the par or stated value.
112. Corporations generally issue stock dividends in order to
a. increase the market price per share.
b. exceed stockholders' dividend expectations.
c. increase the marketability of the stock.
d. decrease the amount of capital in the corporation.
113. A stockholder who receives a stock dividend would
a. expect the market price per share to increase.
b. own more shares of stock.
c. expect retained earnings to increase.
d. expect the par value of the stock to change.
114. When stock dividends are distributed,
a. Common Stock Dividends Distributable is decreased.
b. Retained Earnings is decreased.
c. Paid-in Capital in Excess of Par Value is debited if it is a small stock dividend.
d. no entry is necessary if it is a large stock dividend.
115. A small stock dividend is defined as
a. less than 30% but greater than 25% of the corporation's issued stock.
b. between 50% and 100% of the corporation's issued stock.
c. more than 30% of the corporation's issued stock.
d. less than 20-25% of the corporation's issued stock.

116. The per share amount normally assigned by the board of directors to a large stock dividend is
a. the market value of the stock on the date of declaration.
b. the average price paid by stockholders on outstanding shares.
c. the par or stated value of the stock.
d. zero.
117. The per share amount normally assigned by the board of directors to a small stock dividend is
a. the market value of the stock on the date of declaration.
b. the average price paid by stockholders on outstanding shares.
c. the par or stated value of the stock.
d. zero.
118. Identify the effect the declaration of a stock dividend has on the par value per share and book value per share.
Par Value per Share Book Value per Share
a. Increase Decrease
b. No effect Increase
c. Decrease Decrease
d. No effect Decrease
119. The declaration of a stock dividend will
a. increase paid-in capital.
b. change the total of stockholders' equity.
c. increase total liabilities.
d. increase total assets.

Exercises
Ex. 147
Epson Company had the following transactions:
1. Issued 4,000 shares of \$100 par preferred stock at \$110 for cash.
2. Issued 5,000 shares of common stock with a par value of \$10 for \$85,000.
3. Purchased 500 shares of common treasury stock for \$10,000.
Instructions
Prepare the appropriate journal entries.

Ex. 150On January 1, 2003, Dial Company issued 15,000 shares of \$2 par value common stock for \$100,000. On March 1, 2003, the company purchased 2,000 shares of its common stock for \$10 per share for the treasury. On June 1, 2003, 700 of the treasury shares are sold for \$13 per share. On September 1, 2003, 1,000 treasury shares are sold at \$7 per share.
Instructions
Journalize the stock transactions of Dial Company in 2003.

Ex. 154
In its first year of operations, Abbott Corporation had the following transactions pertaining to its \$40 par value preferred stock.
Feb. 1 Issued 4,000 shares for cash at \$41 per share.
Nov. 1 Issued 2,000 shares for cash at \$44 per share.
Instructions
(a) Journalize the transactions.
(b) Indicate the amount to be reported for (1) preferred stock, and (2) paid-in capital in excess of par value-preferred stock at the end of the year.

Ex. 163 (Decision Making)
Majors Corporation has 1,000,000 authorized shares of \$20 par value common stock. As of June 30, 2003, there were 500,000 shares issued and outstanding. On June 30, 2003, the board of directors declared a \$.50 per share cash dividend to be paid on August 1, 2003.
Instructions
Prepare the necessary journal entries to be recorded on (a) the date of declaration, (b) the date of record, and (c) the date of payment.

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