Exercise 11-5 Stock dividends and splits LO P2 On June 30, 2017, Sharper Corpora
ID: 2529268 • Letter: E
Question
Exercise 11-5 Stock dividends and splits LO P2
On June 30, 2017, Sharper Corporation’s common stock is priced at $27.00 per share before any stock dividend or split, and the stockholders’ equity section of its balance sheet appears as follows.
1. Assume that the company declares and immediately distributes a 100% stock dividend. This event is recorded by capitalizing retained earnings equal to the stock’s par value. Answer these questions about stockholders’ equity as it exists after issuing the new shares.
a.,b.& c. Complete the below table to calculate the retained earnings balance, total stockholders’ equity and number of outstanding shares.
2. Assume that the company implements a 2-for-1 stock split instead of the stock dividend in part 1. Answer these questions about stockholders’ equity as it exists after issuing the new shares.
a.,b.& c. Complete the below table to calculate the retained earnings balance, total stockholders’ equity and number of outstanding shares.
authorized, 24,000 shares issued and outstanding $ 144,000 Paid-in capital in excess of par value, common stock 100,000 Retained earnings 244,000 Total stockholders’ equity $ 488,000
Explanation / Answer
Sharper Corporation
Table showing retained earnings balance, total stockholders’ equity and number of outstanding shares:
Stock Dividend
Before Stock Dividend
Impact of Stock Dividend
After Stock Dividend
Common Stock
$144,000
$144,000
$288,000
Paid-in capital in excess of par value
$100,000
$100,000
Total Contributed Capital
$244,000
$144,000
$388,000
Retained Earnings
$244,000
($144,000)
$100,000
Total Stockholders' Equity
$488,000
$0
$488,000
Number of Common Shares outstanding
24,000
24,000
48,000
Computations-
Retained Earnings –
Retained earnings before stock dividend = $244,000
Less: Stock dividend (at $6, 24,000 shares) -$144,000
Retained earnings after stock dividend $100,000
Total stockholders’ Equity –
Common stock - $6 par value, 60,000 shares authorized.
48,000 shares issued and outstanding $288,000
Paid-in capital in excess of par value $100,000
Retained Earnings $100,000
Total Stockholders’ Equity $488,000
Number of outstanding shares –
Outstanding shares before dividend 24,000
Dividend shares 24,000
Outstanding shares after dividend 48,000
Table showing retained earnings balance, total stockholders’ equity and number of outstanding shares:
Stock split
Before Stock Split
Impact of Stock Split
After Stock Split
Common Stock
$144,000
$144,000
paid-in capital in excess of par value
$100,000
$100,000
Total contributed capital
$244,000
$244,000
Retained Earnings
$244,000
$244,000
Total Stockholders' Equity
$488,000
$488,000
Number of common shares outstanding
24,000
24,000
48,000
Computations –
Retained Earnings:
Before stock split $244,000
After stock split $244,000
Total Stockholders’ Equity:
Common Stock – at $3 par value, 120,000 shares authorized.
48,000 shares issued and outstanding $144,000
Paid-in capital in excess of par value $100,000
Retained earnings $244,000
Total stockholders’ equity $488,000
Number of outstanding shares:
Outstanding shares before stock split 24,000
Additional split shares (2-for-1) 24,000
Outstanding shares after stock split 48,000
Stock Dividend
Before Stock Dividend
Impact of Stock Dividend
After Stock Dividend
Common Stock
$144,000
$144,000
$288,000
Paid-in capital in excess of par value
$100,000
$100,000
Total Contributed Capital
$244,000
$144,000
$388,000
Retained Earnings
$244,000
($144,000)
$100,000
Total Stockholders' Equity
$488,000
$0
$488,000
Number of Common Shares outstanding
24,000
24,000
48,000
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