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  • May 8, 2011, 03:56 PM
    pepsi123
    the company stock is selling for 20 per share the company had total earnings of 40000

    Problem 18-21 Stock dividend and its effect LO4
    Ace Products sells marked playing cards to blackjack dealers. It has not paid a dividend in many years, but is currently contemplating some kind of dividend.
    The capital accounts for the firm are as follows:



    Common stock
    (2,000,000 shares at $5 par)
    $
    10,000,000
    Capital in excess of par*
    6,000,000
    Retained earnings
    24,000,000
    Net worth
    $
    40,000,000

    *The increase in capital in excess of par as a result of a stock dividend is equal to the new shares created times (Market price - Par Value).
    The company's stock is selling for $20 per share. The company had total earnings of $4,000,000 during the year. With 2,000,000 shares outstanding, earnings per share were $2.00. The firm has a P/E ratio of 10.
    Requirement 1:
    What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. (Omit the "$" sign in your response.)



    Common stock
    (2,200,000 shares at $5 par)
    $

    Capital in excess of par

    Retained earnings

    Net worth
    $
  • May 8, 2011, 04:42 PM
    Just Looking

    Please read this announcement.
    Announcement:

    Have you read your textbook? You are right that part of the entry is 200,000 shares at $5 par. The entry for stock dividends is based on the number of shares issued, with 10% being considered a small stock dividend. If you'd like to post what you think is the correct answer, we will check it for you and confirm your understanding. Thanks.

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