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Total number of shares outstanding

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The Peterson Co., a consulting fi rm specializing in diffi cult accounting problems, has 10,000 shares of stock outstanding, each selling at $66. The total market value of the equity is $66 10,000 $660,000. With a 10 percent stock dividend, each stockholder receives one additional share for each 10 owned, and the total number of shares outstanding after the dividend is 11,000.

A seemingly arbitrary accounting procedure is used to adjust the balance sheet after a small stock dividend. Because 1,000 new shares are issued, the common stock account is increased by $1,000 (1,000 shares at $1 par value each), for a total of $11,000. The market price of $66 is $65 greater than the par value, so the "excess" of $65 1,000 shares $65,000 is added to the capital surplus account (capital in excess of par value), producing a total of $265,000.

Reference no: EM132491473

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