Kosmier Company has outstanding 500,000 shares of $50 par value common stock tha
ID: 2346576 • Letter: K
Question
Kosmier Company has outstanding 500,000 shares of $50 par value common stock that originally sold for $60 per share. During the three most recent years, the company carried out the following activities in the order presented: declared and distributed a 10 percent stock dividend, declared and paid a cash dividend of $1 per share; declared and distributed a 2-for-1 stock split, and declared and paid a $0.60 per share cash dividend.A. Determine the number of shares of stock outstanding after the four transactions described above.
B. determine the amount of cash that the company paid in the four transactions described above.
C. Assume if you were a stockholder who held 100 shares of stock that you purchased four years ago when the market value of the shares was $65, how many shares would you own after the four transactions described above?
Explanation / Answer
Kosmier Company has outstanding 500,000 shares of $50 par value common stock that originally sold for $60 per share. During the three most recent years, the company carried out the following activities in the order presented: declared and distributed a 10 percent stock dividend, declared and paid a cash dividend of $1 per share, declared and distributed a 2-for-1 stock split, and declared and paid a $0.60 per share cash dividend.. Determine the amount of cash that the company paid in the four transactions described above. (Omit the "$" sign in your response.) Assume If you were a stockholder who held 100 shares of stock that you purchased four years ago when the market value of the shares was $65, how many shares would you own after the four transactions described above?
10% stock dividend: 500,000 shares 1.10 = 550,000 shares
2:1 stock split: 550,000 2 = 1,100,000 shares
Cash paid $ 1,210,000
: $1 cash dividend: 550,000 shares $1 = $550,000 $.60 cash dividend: 1,100,000 shares $.60 = $660,000
Total cash paid: $550,000 + $660,000 = $1,210,000
=No cash is paid out with a stock dividend or a stock split.: 220 shares [(100 shares 1.10) 2]
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(b) If the market value of the stock was $40 after the four transactions, would you be better or worse off than before the four transactions?
Market value of portfolio before the four transactions: 100 shares $65 = $6,500
Market value of portfolio after the four transactions: 220 shares $40 = $8,800
Your portfolio after the four transactions is $8,800 compared to $6,500 before the four transactions. In addition, you would have received cash dividends,
as follows: (100 shares 1.10 $1) + (110 shares 2 $.60) = $110 + $132 = $242
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