Question

The Western Pipe Company has the following capital section in its balance sheet. Its stock is currently selling for $4 per share. Common stock (65,000 shares at $2 par) $ 130,000 Capital in excess of par 130,000 Retained earnings 250,000 Total equity $ 510,000. The firm intends to first declare a 10 percent stock dividend and then pay a 15-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. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)

Answer 1

Answer:

after stock dividends:

Common Stock                      143,000

Capital in excess of par        143,000

Retained Earnings               224,000

Total                                       510,000

after cash dividends:

Common Stock                      143,000

Capital in excess of par        143,000

Retained Earnings                 213,275

Total                                      499,275

Explanation:

stock dividends:

65,000 shares x 10% = 6,500

6,500 x $4 = 26,000

6,500 x $2 = 13,000 (par value)

difference     13,000 additional paid-in

retained earnings debit 26,000

      common stock               13,000 credit

      additional paid-in           13,000 credit

Now 15 cent cash divideds:

65,000 + 6,500 = 71,500 x 0.15 = 10,725

this will reuce retained earnings and cash.