Show the effect on the capital accounts of a two-for-one stock split. (Do not ro
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Show the effect on the capital accounts of a two-for-one stock split. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)
Show the effect on the capital accounts of a 10 percent stock dividend. Part b is separate from part a. In part b do not assume the stock split has taken place. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)
Based on the balance in retained earnings, which of the two dividend plans is more restrictive on future cash dividends?
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Squash Delight Inc. has the following balance sheet:Explanation / Answer
Answer a.
Common stock : 400,000
Capital excess of par : 100,000
Retained earning : 282,000
Total Equity : $782,000
Answer b.
Common stock : 440,000
Capital excess of par : 190,000
Retained earning : 652,000
Total Equity : $782,000
Answer c.
Stock Dividend
Explanation :
a.
Common Stock = Shares outstanding * par value per share
Common Stock = 100,000 * 0.50*4
Common Stock = 400,000
A stock split affects the number of shares outstanding and the par value per share but has no effect on any of the equity account balance.
b.
Number of new shares = Dividend percent * Number of shares outstanding
Number of new shares = 0.10 * 100,000
Number of new shares = 10,000
Common Stock = Shares outstanding * par value per share
Common Stock = 100,000 + (10,000 * (13 - 4))
Common Stock = 190,000
Retained Earning = Original account balance – (Number of new shares * stock price)
Retained Earning = 282,000 – (10,000 * 13)
Retained Earning = $152,000
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