Val's Marina Supply has 7,500 shares of stock outstanding with a par value of $1 per share and a market value of $28 per share. The balance sheet shows $7,500 in the common stock account, $32,400 in the capital in excess of par account, and $81,800 in the retained earnings account. The firm just announced a 100 percent 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 doubles the number of outstanding shares, so after the dividend, Val's Marina Supply would have 15,000 shares outstanding (7,500 x 2). Since the par value is still $1 per share, the common stock account would increase to $15,000 (15,000 x $1). The total value of the common stock account and the capital in excess of par account must equal the market value of the shares, so the market value of the 15,000 shares is $420,000 ($28 x 15,000). Thus, the capital in excess of par account after the stock dividend is $387,600 ($420,000 - $15,000 - $18,000). ($18,000 is the amount of capital in excess of par before the dividend—$32,400 minus $7,500).

Therefore, the correct answer is C) $32,400.

Val's Marina Supply Has 7,500 Shares of Stock Outstanding with a Par