The owner of 100 shares of stock of a corporation with 2,000 shares of stock outstanding has a 5% interest in the total stockholders' equity. If a 20% stock dividend is declared and distributed, that stockholder would own which of the following number of shares?

Question

Quizplus · Accepted Answer

Before the stock dividend, the number of outstanding shares is 2,000. The stockholder owns 100 shares, which is 5% of the total outstanding shares. Therefore, the total equity is calculated as:
100/0.05 = 2,000
After the stock dividend, the number of outstanding shares increased by 20%:
2,000 x 1.20 = 2,400
The stockholder still owns 5% of the total equity, which is:
2,400 x 0.05 = 120
Therefore, the stockholder would own 120 shares after the stock dividend is declared and distributed.

The Owner of 100 Shares of Stock of a Corporation