Question

A firm's balance sheet has the following entries: Cash $ 11,000,000 Total liabilities 33,000,000 Common stock ($5 par; 1,200,000 shares outstanding) 6,000,000 Additional paid-in capital 600,000 Retained earnings 44,000,000 What will be each of these balance sheet entries after: a three-for-one stock split? Round the par value to the nearest cent, the number of shares outstanding to the nearest whole number, and the other answers to the nearest dollar. Cash $    Total liabilities $   Common stock ($_____ par; _______ shares outstanding) $   Additional paid-in capital $   Retained earnings $   a $1.50 per share cash dividend? Use the original balance sheet from the problem statement. Round the par value to the nearest cent, the number of shares outstanding to the nearest whole number, and the other answers to the nearest dollar. Cash $    Total liabilities $   Common stock ($______ par; ______ shares outstanding) $   Additional paid-in capital $   Retained earnings $   a 15 percent stock dividend (current price of the stock is $15 per share)? Use the original balance sheet from the problem statement. Round the par value to the nearest cent, the number of shares outstanding to the nearest whole number, and the other answers to the nearest dollar. Cash $    Total liabilities $   Common stock ($ _____ par; _______ shares outstanding) $   Additional paid-in capital $   Retained earnings $

Answer 1

a)Stock Split has no effect on equity .the overall effect is that number of shares outstanding gets increased and par value gets decreased.

Cash	11,000,000
Total liabilities	33,000,000
Common stock ($ 1.67 par; 3,600,000 shares outstanding)	6,000,000
Additional paid-in capital	600,000
Retained earnings	44,000,000

#Number of shares outstanding = 1,200,000 *3 = 3,600,000 shares

Par value = 5*1/3 = $ 1.67 per share

b)

Cash [11,000,000-1,800,000]	9,200,000
Total liabilities	33,000,000
Common stock ($ 5 par; 1,200,000 shares outstanding)	6,000,000
Additional paid-in capital	600,000
Retained earnings [44,000,000-1,800,000]	42,200,000

#Cash dividend = 1200000*1.5=1800000

c)

Cash	11,000,000
Total liabilities	33,000,000
Common stock ($ 5 par; 1,380,000 shares outstanding)	6,900,000
Additional paid-in capital [600000+1800000	2,400,000
Retained earnings [44,000,000-2,700,000]	41,300,000

#Number of shares issued as stock dividend = 1200000*15%= 180000 shares

Number of shares outstanding after stock dividend = 1,200,000 before +180,000 stock dividend = 1380000 shares

Value of stock dividend =180000*15 market price= 2700000

Additional paid in capital increased due to stock dividend : Value of stock dividend -par value of stock dividend

                          = 2700000- (180000*5)

                        = 2700000 - 900000

                        = 1800000