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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

An owner of 2,500 shares of Simmons Company common stock receives a stock dividend of 50 shares.

  1. a. What is the effect of the stock dividend on the stock holder's proportionate interest (equity) in the corporation?
  2. b. How does the total equity of 2,550 shares compare with the total equity of 2,500 shares before the stock dividend?

To determine

A.

Stock Dividends

When the dividends are declared and paid to the common stockholders in the form of shares of stock, it is known as stock dividends. Stock dividends option is preferred by the board of directors in the event of scarcity of cash or when cash is required for urgent business needs, like purchase of new plants, replacement of equipment and payment of liabilities.

To Determine: The effect of the stock dividend on the stockholders’ proportionate equity in the corporation.

Explanation

The stock dividend of 50 shares on 2,500 shares of common stock of Company S would ha...

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