The Strasburg Company’s stock currently trades at $90 per share. Below is their

Question

The Strasburg Company’s stock currently trades at $90 per share. Below is their partial balance sheet:

Common Stock (1,500,000 shares outstanding) 30,000,000

Retained Earnings 15,000,000

Total 45,000,000

a) The company is considering a 3 for 2 stock split. What will be the company’s stock price following the stock split? How many shares will be outstanding? Show any changes to the Balance sheet.

b) If instead, the company does a 7% stock dividend. What will be the company’s stock price following the stock dividend? How many shares will be outstanding? Show any changes to the Balance sheet.

Explanation / Answer

Statement Showing No. Share and changes in Balancesheet( Equity section) in both option Before Action After Stock Dividend After Stock Split Stockholder's Equity Paid in Capital $30,000,000 $39,450,000 $39,450,000 Retained Earning $15,000,000 $5,550,000 $5,550,000 Total Stockholder's Equity $45,000,000 $45,000,000 $45,000,000 Outstanding shares ( No. of Share)           1,500,000                         1,605,000               2,250,000 Working Note for No. of Share after Stock Dividend No of share issued as Stock dividend = 1500000 Share*7%= 105000 Sahre Revised Paid in Capital $39,450,000 =$30000000+(105000*$90) Retained Earning Balance $5,550,000 =$15000000-(150000*$90) Working Note for No. of Share after StockSplit No. of Existing Share 1500000 Share Revised No. of Share after stock Split 2250000 Share (1500000 share*3/2)

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