Excelsior Company's capital structure is as follows: $\begin{array}{lr}
\text { Common stock ( } \$ 2 \text { par value, } 2,000,000 \text { shares) } & \$ 4,000,000 \
\text { Contributed capital in excess of par } & 16,000,000 \
\text { Retained earnings } & 23,000,000\
\text { Total common stockholders' equity }&\$43,000,000
\end{array}$ ? The current market price of the firm's common stock is $30. Assuming the firm declares a 10% stock dividend, determine the balance in the contributed capital in excess of par and retained earnings accounts.
A) $22,000,000; $17,000,000
B) $21,600,000; $17,000,000
C) $21,600,000; $23,000,000
D) $17,000,000; $21,600,000

Question

Quizplus · Accepted Answer

A 10% stock dividend on 2,000,000 shares means 200,000 new shares are issued. At $30 per share, this is $6,000,000. Par value is $2, so $400,000 goes to common stock, and $5,600,000 to contributed capital in excess of par. Retained earnings decrease by $6,000,000, resulting in $17,000,000. Contributed capital in excess of par becomes $21,600,000.

Excelsior Company's Capital Structure Is as Follows ? the Current Market Price of the Firm's Common Stock