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 1 year ago

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