On June 30, 2015, Roger Company showed the following data on the equity section of their balance sheet: On July 1, 2015, Roger declared and distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, what would be the new balance in Paid-In Capital in Excess of Par-Common?

Question

On June 30, 2015, Roger Company showed the following data on the equity section of their balance sheet:  On July 1, 2015, Roger declared and distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, what would be the new balance in Paid-In Capital in Excess of Par-Common?

Quizplus · Accepted Answer

First, we need to calculate the total number of shares outstanding after the stock dividend. Roger Company had 200,000 shares outstanding before the dividend (100,000 issued shares + 100,000 treasury shares). After the 5% stock dividend, there would be an additional 10,000 shares outstanding (5% x 200,000). Thus, the total number of shares outstanding after the dividend would be 210,000 shares.

Next, we need to calculate the par value of the additional 10,000 shares. Each share has a par value of $10, so the total par value of the additional shares is $100,000 ($10 per share x 10,000 shares).

The market value of the additional shares is $13 per share, so the total value of the additional shares is $130,000 ($13 per share x 10,000 shares).

Paid-In Capital in Excess of Par-Common is calculated as the difference between the total amount of cash received from issuing stock and the par value of the stock. Before the dividend, this account had a balance of $244,000 (calculated as $544,000 cash received from issuing stock minus $300,000 par value of the common stock).

After the dividend, the par value of the common stock would increase to $400,000 ($300,000 original par value + $100,000 par value of the additional shares). The total amount of cash received from issuing stock would remain the same at $544,000, and the total balance in Paid-In Capital in Excess of Par-Common would be $344,000 (calculated as $544,000 cash received from issuing stock minus $400,000 par value of the common stock). Therefore, the correct answer is D) $344,000.

On June 30, 2015, Roger Company Showed the Following Data