Question

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. Common stock—$6 par value, 90,000 shares authorized, 36,000 shares issued and outstanding $ 216,000 Paid-in capital in excess of par value, common stock 100,000 Retained earnings 316,000 Total stockholders’ equity $ 632,000

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.

	Stock Dividend Before Stock Dividend Impact of Stock Dividend After Stock Dividend Common stock Paid in capital in excess of par value Total contributed capital Retained earnings Total stockholders' equity Number of common shares outstanding

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.

	Stock Split Before Stock Split Impact of Stock Split After Stock Split Common stock Paid in capital in excess of par value Total contributed capital 0 0 Retained earnings Total stockholders' equity $0 $0 Number of common shares outstanding

Answer 1

• All working forms part of the answer
• Requirement 1

Stock Dividend = 100% = 36000 shares x 100% = 36000 shares as Stock Dividend

Stock Dividend	Before Stock Dividend	Impact of Stock Dividend	After Stock Dividend
Common stock	$           216,000.00	$     216,000.00 [36000 x $ 6]	$     432,000.00
Paid in capital in excess of par value	$           100,000.00	$                  -	$     100,000.00
Total contributed capital	$           316,000.00	$     216,000.00	$     532,000.00
Retained earnings	$           316,000.00	$    (216,000.00)	$     100,000.00
Total stockholders' equity	$           632,000.00	$                  -	$     632,000.00
Number of common shares outstanding	36,000	36,000 [36000 x 100%]	72,000

• Requirement 2

When Stock Split happens, TWO things take place:

--No. of shares outstanding increases,
--Par Value per share decreases.

Value of Common Stock remains the same.

Stock Split	Before Stock Split	Impact of Stock Split	After Stock Split
Common stock	$           216,000.00	$                  -	$     216,000.00
Paid in capital in excess of par value	$           100,000.00	$                  -	$     100,000.00
Total contributed capital	$           316,000.00	$                  -	$     316,000.00
Retained earnings	$           316,000.00	$                  -	$     316,000.00
Total stockholders' equity	$           632,000.00	$                  -	$     632,000.00
Number of common shares outstanding	36,000	36,000	72,000