Murphy's, Inc. has 31,900 shares of stock outstanding with a par value of $1.00 per share. The market value is $14.00 per share. The balance sheet shows $87,750.00 in the capital in excess of par account, $31,900.00 in the common stock account, and $146,950 in the retained earnings account. The firm just announced a 12 percent (small) stock dividend. What will the market price per share be after the dividend?

$12.50

Explanation:

current outstanding stocks 31,900

par value $1 per stock

market value $14 per stock

Additional paid in capital $87,750

retained earnings $146,950

12% stock dividend

When a small stock dividend is declared, you must record the transaction using the market price of the stocks. For a large stock dividend, you must use the par value to record the transaction. Number of stocks issued = 31,900 x 12% = 3,828 x $14 (market price) = $53,592

The journal entry should be:

Dr Retained earnings 53,592

    Cr Common stock 3,828

    Cr Additional paid in capital 49,764

the price per share after the dividend should = market price / (1 + % stock split) = $14 / 1.12 = $12.50

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