Downtown Deli has 2,000 shares of stock outstanding with a par value of $1 per share and a market value of $26 per share.The balance sheet shows $2,000 in the common stock account,$9,500 in the capital in excess of par account,and $14,500 in the retained earnings account.The firm just announced a stock dividend of 75 percent.What is the market value per share after the dividend?

Question

Quizplus · Accepted Answer

After a 75% stock dividend, the number of shares increases to 3,500 (2,000 original shares + 1,500 additional shares from the 75% dividend). The total market value remains the same at $52,000 (2,000 shares * $26 per share) because a stock dividend redistributes shares without changing the firm's market value. Dividing the total market value by the new number of shares gives a new market value per share of $14.86 ($52,000 / 3,500 shares).

Downtown Deli Has 2,000 Shares of Stock Outstanding with a Par