Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $11.50 per share.
$$\begin{array} { | l | r | }
\hline \begin{array} { l }
\text { Common stock, \$5 par, } 100,000 \text { shares } \
\text { authorized, } 40,000 \text { shares issued }
\end{array} & \$ 200,000 \
\hline \text { Paid in capital in excess of par - common } & 120,000 \
\hline \text { Retained earnings } & \underline { 290,000 } \
\hline \text { Total stockholders' equity } & \$ \underline { 610,000 } \
\hline
\end{array}$$ What would be the total paid-in capital after a 10% common stock dividend?

Question

Gordon Corporation reported the following equity section on its current balance sheet. The common stock is currently selling for $11.50 per share.
$$\begin{array} { | l | r | } 
\hline \begin{array} { l } 
\text { Common stock, \$5 par, } 100,000 \text { shares } \
\text { authorized, } 40,000 \text { shares issued }
\end{array} & \$ 200,000 \
\hline \text { Paid in capital in excess of par - common } & 120,000 \
\hline \text { Retained earnings } & \underline { 290,000 } \
\hline \text { Total stockholders' equity } & \$ \underline { 610,000 } \
\hline
\end{array}$$ What would be the total paid-in capital after a 10% common stock dividend?

Quizplus · Accepted Answer

A 10% stock dividend on 40,000 shares is 4,000 shares. The par value of these shares is $5, so the increase in common stock is $20,000 (4,000 shares * $5). The market value is $11.50 per share, but for stock dividends, the value transferred to paid-in capital is the excess over par, which is $6.50 per share ($11.50 - $5). Thus, the increase in paid-in capital in excess of par is $26,000 (4,000 shares * $6.50). The original paid-in capital in excess of par is $120,000, so the total paid-in capital after the dividend is $200,000 (common stock) + $120,000 (original excess of par) + $26,000 (increase in excess of par) = $346,000. However, since the correct calculation should include the increase in common stock ($20,000) in the total paid-in capital, the correct total paid-in capital is $366,000.

Gordon Corporation Reported the Following Equity Section on Its Current