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    Capital section of the balance sheet

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

    Common stock (100,000 shares at $1 par) = $100,000
    Capital in excess of par - 100,000
    Retained earnings = 200,000
    TOTAL = $400,000

    The firm intends to first declare a 10 percent stock dividend and then pay a 30-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.

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    Solution Preview

    a. A 10% stock dividend would mean thet 100,000X10%=10,000 shares would be issued. The current market price is $5. Total amount taken from retained earnings will be 10,000X5=50,000. The common stock account ...

    Solution Summary

    The solution explains how to prepare the capital section of the balance sheet after a stock dividend and after a cash dividend