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A firm has the following balance sheet: Assets Liabilities and Equity Cash $ 5,000 Accounts payable...

A firm has the following balance sheet:

Assets Liabilities and Equity
Cash $ 5,000 Accounts payable $ 5,000
Accounts receivable 158,000 Long-term debt 111,000
Inventory 72,500 Common stock ($9 par; 31,500
3,500 shares outstanding)
Plant and equipment 210,000 Additional paid-in capital 150,000
Retained earnings 148,000
$445,500 $445,500

A. Construct a new balance sheet showing the impact of a three-for-one split. If the current market price of the stock is $56, what is the price after the split? Round the par value and the market price after the split to the nearest cent, the number of shares outstanding to the nearest whole number, and the other answers to the nearest dollar.

Assets Liabilities and Equity
Cash $__________ Accounts payable $________
Accounts receivable $ _________   Long-term debt $ _________
Inventory $__________ Common stock ($   par; $ _________
shares outstanding)
Plant and equipment $ _________ Additional paid-in capital $ _________
Retained earnings $ _________
$ ________ $ __________

Price of the common stock after the split: $  

B. Construct a new balance sheet showing the impact of a 10 percent stock dividend. After the stock dividend, what is the new price of the common stock? Use the original balance sheet from the problem statement. Round the par value and the market price after the stock dividend to the nearest cent, the number of shares outstanding to the nearest whole number, and the other answers to the nearest dollar.

Assets Liabilities and Equity
Cash $    _____________ Accounts payable $____________  
Accounts receivable   $    ____________    Long-term debt $ ___________
Inventory $    _____________ Common stock ($   par; $ ___________
shares outstanding)
Plant and equipment $    _____________ Additional paid-in capital $ ___________
Retained earnings $ ____________  
$    _____________ $ ___________

Price of the common stock after the stock dividend: $ ___________

Solutions

Expert Solution

A) No. of Equity Share = 3500 shares

Shares Split in three for one

No. of Equity Shares After Split = 3500 * 3 = 10500 shares

Market Value of Share = 3500 * $56 = $196000

Market Price Per Share = $196000 / 10500 = $18.67 per share

Balance Sheet :-

Assets Amount($) Liabilities and Equity Amount($)
Cash 5000 Accounts Payable 5000
Accounts Receivable 158000 Long-term debt 111000
Inventory 72500 Common Stock ($3 par value,10500 Shares outstanding ) 31500
Plant and Equipment 210000 Additional Paid In Capital 150000
   Retained Earnings 148000
Total 445500 Total 445500

Par Value = $31500 / 10500 = $3

2) no. of share in Dividend = 3500*10% = 350 shares

Total Stock Divided Amount = 350 * $56 = $19600

Stock Dividend Face Value = 350 * $9 = $3150

Paid in Capital = $19600 - $3150 = $16450

Balance Sheet :-

Assets Amount($) Liabilities and Equity Amount($)
Cash 5000 Accounts Payable 5000
Accounts Receivable 158000 Long-term debt 111000
Inventory 72500 Common Stock ($9 par value, 3850 Shares outstanding ) 34650
Plant and Equipment 210000 Additional Paid In Capital ($150000+$16450) 166450
   Retained Earnings ($148000-$19600) 128400
Total 445500 Total 445500

Market Price of Stock = $196000 / 3850 = $50.91 per share

ekkarill92 answered 2 years ago
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