Squash Delight Inc. has the following balance sheet: AssetsCash$100,000Accounts receivable 300,000Fixed assets 600,000Total assets$1,000,000LiabilitiesAccounts payable$150,000Notes payable 50,000Common stock (50,000 shares @ $2 par) 100,000Capital in excess of par 200,000Retained earnings 500,000Total liabilities & owners' equity$1,000,000 The firm’s stock sells for $10 a share.Show the effect on the capital accounts of a 10 percent stock dividend. Part b is separate from part a. In part b, do not assume the stock split has taken place. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)

Stock dividend refers to the payment made to the shareholders in the form of dividends which is made either in cash or shares. It has the advantage of rewarding shareholders without actually diminishing the company's cash balance. A) Effect on the capital account(s) of a two-for-one stock split: Before Split Amount Common stock (50,000 shares × $2 par) $ 100,000 Capital in excess of par $ 200,000 Retained earnings $ 500,000 Total $ 800,000 After Split Common stock (50,000×2 = 100,000 shares × ($21 ) = $1 par) (No Change in amount only number shares and par value changed) $ 100,000 Capital in excess of par (No Change) $ 200,000 Retained earnings (No Change) $ 500,000 Total $ 800,000B) Effect on the capital accounts of a 10% stock dividend: Before Split Amount Common stock (50,000 shares @ $2 par) $ 100,000 Capital in excess of par $ 200,000 Retained earnings $ 500,000 Total $ 800,000 Stock Dividend =50,000 Shares × 10% = 5,000 Shares × $2 Each = $10,000 After Stock Dividend Common stock (50,000 +5,000 = 55,000 shares × $2 par) $ 110,000 Capital in excess of par $ 200,000 Retained earnings ($500,000 -Stock Dividend of $10,000) $ 490,000 Total $ 800,000

Answered: Squash Delight Inc. has the following…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Squash Delight Inc. has the following balance sheet:


Assets
Cash	$	100,000
Accounts receivable		300,000
Fixed assets		600,000
Total assets	$	1,000,000
Liabilities
Accounts payable	$	150,000
Notes payable		50,000
Common stock (50,000 shares @ $2 par)		100,000
Capital in excess of par		200,000
Retained earnings		500,000
Total liabilities & owners' equity	$	1,000,000

The firm’s stock sells for $10 a share.

Show the effect on the capital accounts of a 10 percent stock dividend. Part b is separate from part a. In part b, do not assume the stock split has taken place. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)

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