Morgan's has 9,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $16 per share. The balance sheet shows $9,000 in the common stock account, $62,000 in the capital in excess of par account, and $40,500 in the retained earnings account. The firm just announced a 100 percent (large) stock dividend. What is the value of the capital in excess of par account after the dividend?

Question

Quizplus · Accepted Answer

A 100 percent stock dividend means the number of shares will double, so Morgan's will issue an additional 9,000 shares. Since the par value is $1.00 per share, the common stock account will increase by $9,000 (9,000 shares * $1.00), which is transferred from the capital in excess of par account. However, since this transaction only involves the transfer of amounts between equity accounts and does not add new capital, the total amount in the capital in excess of par account remains unchanged at $62,000.

Morgan's Has 9,000 Shares of Stock Outstanding with a Par