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On October 1, Oriole Corporation’s stockholders’ equity is as follows.

Common stock, $7 par value $535,500
Paid-in capital in excess of par—common stock 30,000
Retained earnings 167,000
Total stockholders’ equity $732,500

On October 1, Oriole declares and distributes a 10% stock dividend when the market price of the stock is $14 per share.

Required:
a. Compute the par value per share (1) before the stock dividend and (2) after the stock dividend.
b. Indicate the balances in the three stockholders? equity accounts after the stock dividend shares have been distributed.

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Answer:

a. Compute the par value per share (1) before the stock dividend and (2) after the stock dividend.

  • 1) $7 per stock
  • 2) $7 per stock

b. Indicate the balances in the three stockholders? equity accounts after the stock dividend shares have been distributed.

  • Common stock $589,050
  • Paid-in capital in excess of par - common stock $83,550
  • Retained earnings $625,400

Explanation:

since it is a "small" stock dividend, it will be carried out at market value and not at par value.

the total number of stocks = $535,500 / $7 par value = 76,500 stocks

total transaction = 76,500 stocks x $14 x 10% = $107,100

the journal entry should be:

Dr Retained earnings 107,000

    Cr Common stock 53,550

    Cr Paid in capital in excess of par value 53,550

total common stock account = $535,500 + $53,550 = $589,050 / 84,150 stocks = $7 per stock