Stockholders' Equity Section Of Zacman Company's Balance She

The Stockholders Equity Section Of Zacman Companys Balance Sheet As

The stockholders’ equity section of Zacman Company’s balance sheet as of April 1 follows. On April 2, Zacman declares and distributes a 10% stock dividend. The stock’s per share market value on April 2 is $25 (prior to the dividend). Common stock—$5 par value, 375,000 shares authorized, 150,000 shares issued and outstanding $ 750,000 Paid-in capital in excess of par value, common stock 352,500 Retained earnings 633,000 Total stockholders' equity $ 1,735,500

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The following analysis provides a comprehensive overview of Zacman Company’s stockholders’ equity as of April 1 and examines the impact of the stock dividend declared on April 2. Stockholders’ equity is an essential component of a company's financial health, reflecting the residual interest in the assets after deducting liabilities. This section encompasses common stock, additional paid-in capital, retained earnings, and other reserves, and is critical for investors and management to assess the company's financial stability and growth prospects.

As of April 1, Zacman Company’s stockholders’ equity totaled $1,735,500, composed of common stock with a par value of $5 per share, paid-in capital in excess of par, and retained earnings. The common stock has a total authorized shares of 375,000, with 150,000 shares issued and outstanding, representing a significant portion of equity capital. The account balance of $750,000 for common stock indicates that all issued shares are valued at the stock’s par worth, reinforcing the company's capital structure.

The paid-in capital in excess of par, amounting to $352,500, reflects the amount received from shareholders over the par value when shares were originally issued. It is a crucial component because it signifies the premium paid by investors, which adds to the company's equity base beyond nominal par value. Retained earnings amount to $633,000, representing accumulated net income retained in the company for growth, operational flexibility, or future investments.

On April 2, Zacman declared a 10% stock dividend. A stock dividend involves distributing additional shares to existing shareholders proportional to their holdings, rather than cash. This process impacts the components of stockholders’ equity, particularly reducing retained earnings while increasing common stock and possibly paid-in capital if the dividend is recorded at market value.

The market value of the stock is $25 per share on April 2, prior to the dividend distribution, but the dividend is accounted for at the stock’s par value or market value, depending on company policy. For Zacman, assuming the dividend is recorded based on the market value, the total value of the stock dividend is computed as 10% of 150,000 shares, which equals 15,000 additional shares. The total market value of these shares at $25 per share is $375,000; however, for accounting purposes, the stock dividend will be recorded by transferring an amount from retained earnings to common stock and possibly additional paid-in capital.

The journal entry to declare and distribute the stock dividend generally involves debiting retained earnings and crediting common stock at par value ($5 per share). The excess amount over par, if any, is credited to paid-in capital in excess of par. In this scenario, the increase in common stock will be 15,000 shares * $5 par value = $75,000. The remaining $300,000 ($375,000 total market value minus $75,000 par value increase) will be credited to paid-in capital in excess.

Therefore, the impact on the financial statements is as follows: Retained earnings will decrease by the total market value of the dividend, $375,000, reflecting the distribution of earnings in the form of additional shares. The common stock accounts will increase by $75,000, reflecting the additional shares issued at par. The paid-in capital in excess of par will increase by $300,000, representing the premium over par value.

Post-dividend, the new balances will show an increased number of shares (165,000), reflecting the stock dividend issuance, and adjustments in equity components. The total stockholders’ equity remains unchanged in total value but is redistributed among its components. This process enhances shareholders’ ownership percentage, maintains operational capital, and can influence market perceptions.

In conclusion, Zacman Company’s stockholders’ equity as reported on April 1 underscores a solid capital base with significant retained earnings and paid-in capital. The declaration of a 10% stock dividend on April 2 results in reallocating a portion of retained earnings into common stock and paid-in capital, without affecting the total equity amount. Such dividends can signal the company’s confidence in future profitability, while also impacting per-share metrics and investors’ view of company stability.

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