The owners’ equity accounts for Freya International are shown here: Common stock ($.60 par value)$30,000 Capital surplus 310,000 Retained earnings 688,120 Total owners’ equity$1,028,120 a-1If Freya stock currently sells for $20 per share and a 20 percent stock dividend is declared, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued a-2Show how the equity accounts would change. (Do not round intermediate calculations.) Common stock$ Capital surplus Retained earnings Total owners’ equity$ b-1If instead Freya declared a 25 percent stock dividend, how many new shares will be distributed? (Do not round intermediate calculations.) New shares issued b-2Show how the equity accounts would change. (Do not round intermediate calculations.) Common stock$ Capital surplus Retained earnings Total owners’ equity$ HintsReferenceseBook & ResourcesHint #1

Part a-1: Current selling price = $20 Stock dividend declared = 20% New shares issued = New Shares - Old shares Current Number of shares =Common StockPar Value = $30,000$0.60= 50,000 New Number of shares = Shares Issued ×(1+ Increase in stock)= 50,000 × (1 + 20%)= 50,000 ×1.20= 60,000 New issued shares =(New number of shares - Current Number of shares)= 60,000 - 50,000= 10,000 sharesPart a-2: Common Stock = New number of stock × Par Vaue = 60,000 × $0.60=$36,000 Capital Surplus per share = Current Selling price - Par Value = $20 - $0.60= $19.40 Capital Surplus increased by =New issued shares ×Capital surplus per share = 10,000 × $19.40= $194,000 Capital Surplus = Old Capital Surplus + New Capital Surplus = $310,000 +$194,000= $504,000Retained earnings decreased by = Issued new shares × $20= 10,000 × $20= $200,000 Retained earnings =Old retained earnings - Decrease in retained earnings = $688,120 - $200,000= $488,120 Total ownership's equity = Common Stock + Retained Earnings + Capital Surplus = $36,000 + $488,120 + $504,000= $1,028,120Part b-1: Current selling price = $20 Stock dividend declared = 25% New shares issued = New Shares - Old shares Current Number of shares =Common StockPar Value = $30,000$0.60= 50,000 New Number of shares = Shares Issued ×(1+ Increase in stock)= 50,000 × (1 + 25%)= 50,000 ×1.25= 62,500 New issued shares =(New number of shares - Current Number of shares)= 62,500 - 50,000= 12,500 sharesPart b-2: Common Stock = New number of stock × Par Vaue = 62,500 × $0.60=$37,500 Capital Surplus per share = Current Selling price - Par Value = $20 - $0.60= $19.40 Capital Surplus increased by =New issued shares ×Capital surplus per share = 12,500 × $19.40= $242,500 Capital Surplus = Old Capital Surplus + New Capital Surplus = $310,000 +$242,500= $552,500Retained earnings decreased by = Issued new shares × $20= 12,500 × $20= $250,000 Retained earnings =Old retained earnings - Decrease in retained earnings = $688,120 - $250,000= $438,120 Total ownership's equity = Common Stock + Retained Earnings + Capital Surplus = $37,500 + $438,120 + $552,500= $1,028,120

Answered: The owners’ equity accounts for Freya…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

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The owners’ equity accounts for Freya International are shown here:


Common stock ($.60 par value)	$	30,000
Capital surplus		310,000
Retained earnings		688,120

Total owners’ equity	$	1,028,120

a-1	If Freya stock currently sells for $20 per share and a 20 percent stock dividend is declared, how many new shares will be distributed? (Do not round intermediate calculations.)

New shares issued

a-2

Show how the equity accounts would change. (Do not round intermediate calculations.)


Common stock	$
Capital surplus
Retained earnings

Total owners’ equity	$

b-1	If instead Freya declared a 25 percent stock dividend, how many new shares will be distributed? (Do not round intermediate calculations.)

New shares issued

b-2

Show how the equity accounts would change. (Do not round intermediate calculations.)


Common stock	$
Capital surplus
Retained earnings

Total owners’ equity	$

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eBook & Resources

Hint #1

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