Q9SE-3 - Horngren'S Financial And Managerial Accounting

Question

Question: Journalizing a small stock dividend

Element Water Sports has 13,000 shares of \(1 par value common stock outstanding. 

Element distributes a 5% stock dividend when the market value of its stock is \)15 per share.

Requirements

3. What is the overall effect on total stockholders’ equity?

Step-by-Step Solution

Answer

Answer

No effect of stock dividend will be traced on the shareholders’ equity.

Step 1: Basic Introduction-

Shareholders’ equity represents the value invested by the owner of the corporation in the corporation either through retained earnings over time or investing cash.

Step 2: The overall effect on total stockholders’ equity -

A stock dividend increases by the par value of the stock being distributed the total stockholders' equity. But there is no effect of the stock dividend on total stockholders' equity.