I am stuck. The question is the stockholers' equity section of catalina company's balance sheet as of April 1 follows. On April 2, catalina declares and distributes a 10 percent stock dividend. The stock's per share market value on April 2 is 25. Prepare the stockholders equity section immediately after the stock dividend.

I came up with

Retained earnings 25,000

I'm confused after that.

This is a small stock divided because it is less than 20-25% of the comon shares outstanding. What would happen here is that retained earnings would be debited by the fair market value which is market value 25 multiplied by the number of shares issued which I'm assuming is 1,000. So you put this under total paid-in capital. The include common stock distributable which is the common stock that will be dsitributed by the corporation to the shareholders under Capital Stock section of the Stockholders' equity statement in this case it would be number of shares (1,000 * 10% (which is the stock dividend) so this is the amount of shares that will be distributed to common stockholders as dividend. The difference between this amount and the retained earnings represents the additional paid-in capital which is (25,000-100= 24,900). This is also another account under the additional paid-in capital in the SE statement. The common stock dividend represents a payment out of retained earnings thus it is debited.

Hope that helps.

:)

Aaron, you have an inconsistency. First, I don't know where your assumption of 1000 shares came from. Also, the debit to retained earnings (or to stock dividend, depending on how the book is doing it), would not be on that 1000 shares. The step you mentioned later of taking 1000 x 10% is what you have to do first. That is the number of shares being given out for the stock dividend. (This is assuing they had 1000 shares. We don't know how many they had.) And then THAT number is multiplied by the $25 market value. Otherwise you're multiplying the market value by the current number of shares that exist, rather than the new dividend shares.

You can't use 1000 one place, and use 1000 x 10% another place. The number of shares has to be consistent throughout. If they had 1000, and did 10%, that's 100 shares, and you must use the 100 shares everywhere in your calculations.

Also, the 1000 x 10% would give a number of shares, not the dollar amount that would be used in the entry. i.e. your difference makes no sense. What goes into the distributable is the new shares times par.

ivory, no one can tell you anything because you've given no information to work with. All we know is that there's a 10% stock dividend and current market is $25. We can't even do the entry off that information. 10% of what? We have no info on the stock that currently exists.

And even if we could do the entry, we can't do balances for the SE section of the balance sheet, because you've given no balances that existed prior to this entry. That's like telling me the amount of a check you wrote and then asking me what your checking account balance is now, without telling me what it was before you wrote the check. I don't even know where you got the $25,000 in retained earnings -- from what information??

The SE section consists of stock accounts, additional paid-in capital accounts, the distributable account in this case, retained earnings and possibly treasury stock. All you did was retained earnings. And we have nothing here to work with -- can't do the entry and can't do balances.