Excelsior Company's capital structure is as follows:
The current market price of the firm's common stock is $30. If 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

Excelsior Company's capital structure is as follows: 
The current market price of the firm's common stock is $30. If 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

Quizplus · Accepted Answer

Solution:
Number of new shares = 0.10 (2,000,000) = 200,000
Amount transferred from R/E = 200,000 * $30 = $6,000,000
New R/E balance = $23,000,000 - $6,000,000 = $17,000,000
New C/S balance = $4,000,000 + 200,000 * $2 = $4,400,000
New Contributed capital in excess of par balance = $16,000,000 + ($6,000,000- $400,000) = $21,600,000
New Total C/S Equity $43,000,000 (no change)

Excelsior Company's Capital Structure Is as Follows