Q10SE_2 - Horngren'S Financial And Managerial Accounting

Question

Question: Journalizing a large stock dividend

Nelly, Inc. had 320,000 shares of \(2 par value common stock issued and outstanding as of December 15, 2018. The company is authorized to issue 1,300,000 common shares. On December 15, 2018, Nelly declared a 40% stock dividend when the market value for Nelly’s common stock was \)7 per share. The stock was issued on Dec. 30.

Requirements

2. How many shares of common stock are outstanding after the dividend?

Step-by-Step Solution

Answer

Answer

4,48,000 shares were outstanding after the Dividend distribution.

Step 1: Basic Introduction-

A corporate declares dividend out of cash or profit of the year. Dividend it to be distributed to the shareholders out of certain portion of profit or surplus. 

Step 2: Availability of shares-

Existing shares are 320,000 shares

 $$\begin{gathered} \mathbf{StockDividend}\mathbf{=}\mathbf{NumberofShares}\mathbf{\times }\mathbf{DividendRate} \\ \mathbf{=}\mathbf{320}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{40}\mathbf{\%} \\ \mathbf{=}\mathbf{128}\mathbf{,}\mathbf{000} \\ \mathbf{TotalShares}\mathbf{=}\mathbf{ExistingShares}\mathbf{+}\mathbf{StockDividend} \\ \mathbf{=}\mathbf{320}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{128}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{448}\mathbf{,}\mathbf{000} \end{gathered}$$