Question

UCONN Group has the following items in its current balance sheet:

Common Stock 5,000,000 shares authorized, 1,200,000 issued. $6,000,000

Capital Surplus $3,600,000

Treasury Stock on Common 100,000 shares $1,320,000

Cumulative Preferred Stock 17,000,000 authorized {8%} $2 par $12,000,000

Retained Earnings $30,180,000

1.) If UCONN Group were to provide for a 10% common stock dividend, then how many new shares are to be mailed to existing shareholders?

2.) Assume in question [8] the market price of the common stock was $20 at the time of the stock dividend announcement. What is the journal entry to record the stock dividend?

3.) Explain the concept of the reverse stock split.

Answer 1

Answer to Part 1.
Common Stock issued = 1,200,000 shares
No. of Treasury Stock = 100,000 shares
Common Stock Outstanding = 1,200,000 – 100,000 shares
Common Stock Outstanding = 1,100,000 shares

Stock Dividend declared = 10%
No. of Shares to be issued to Shareholders as Stock Dividend = 1,100,000 * 10%
No. of Shares to be issued to Shareholders as Stock Dividend = 110,000 Shares

Answer to Part 2.

Par Value per Common Stock = $6,000,000 / 1,200,000
Par Value per Common Stock = $5

Answer to Part 3.

Reverse Stock split is a corporation action in which shares are reorganised to be issued in smaller number with a higher par value/ market value as compared to before such corporate action.

For instance,
A reverse stock split of 1 for 4 means one share will be offered against every 4 shares held.