A corporation had 50,000 shares of $20 par value common stock outstanding on November 1 with no preferred stock issued or outstanding.The company's retained earnings was $200,000 and total stockholders' equity was $500,000.Later that day,the board declared a 10% stock dividend when the market value of each share was $25.Shortly after declaration,the market value fell to $22.50 per share.Sam Lewis owned 200 shares of stock prior to the declaration.After the stock dividend,the total book value of Lewis' stock after receiving additional shares was:

Question

Quizplus · Accepted Answer

Before the stock dividend, Sam Lewis owned 200 shares out of 50,000 shares. Therefore, he owned 0.4% (200/50,000) of the company.

After the 10% stock dividend, he received an additional 20 shares (10% of 200). So, he now owns 220 shares out of 55,000 shares. Therefore, he owns the same percentage of the company, which is 0.4%.

The total value of his shares before the stock dividend was:
200 shares x $25 per share = $5,000

After the stock dividend, he owns 220 shares x $22.50 per share (the new market value) = $4,950.

Therefore, the total book value of Lewis' stock after receiving additional shares was $2,475 (0.4% of $500,000), plus the market value of his 20 additional shares (20 shares x $22.50 per share = $450).
$2,475 + $450 = $2,925

However, the question asks for the total book value of his stock, which includes his original 200 shares. So, the final answer is:
$2,925 + $2,000 (original value of his 200 shares) = $4,925

Therefore, the best choice is B.

A Corporation Had 50,000 Shares of $20 Par Value Common