STU Corporation is authorized to issue 500,000 shares of $12.00 par value common stock. As of December 2014, STU's stockholders' equity accounts report the following balances: At the end of 2014, ABD decided to issue a 15% stock dividend, when the market price of the stock was $14 per share.
Calculate the number of shares outstanding after the stock dividends are issued.

Question

STU Corporation is authorized to issue 500,000 shares of $12.00 par value common stock. As of December 2014, STU's stockholders' equity accounts report the following balances:  At the end of 2014, ABD decided to issue a 15% stock dividend, when the market price of the stock was $14 per share.
Calculate the number of shares outstanding after the stock dividends are issued.

Quizplus · Accepted Answer

- First, we need to calculate the total amount of dividends to be issued: 
    - Market price per share = $14 
    - Par value per share = $12 
    - Dividend rate = 15% 
    - Dividend per share = Par value per share x Dividend rate = $12 x 15% = $1.80 
- Next, we need to find the total number of new shares to be issued: 
    - Total dividends to be issued = Total shares outstanding x Dividend per share 
    - Total shares outstanding = (Common stock balance / Par value per share) = ($1,800,000 / $12) = 150,000 shares 
    - Total dividends to be issued = 150,000 x 15% = 22,500 shares 
- Finally, we add the new shares to the total shares outstanding to get the final number of shares: 
    - Final shares outstanding = Total shares outstanding + New shares issued 
    - Final shares outstanding = 150,000 + 22,500 = 172,500 shares 
Therefore, the answer is choice C: 60,950 shares.

STU Corporation Is Authorized to Issue 500,000 Shares of $12