Question 5 (Q 6) The shareholders' equity section of the statement of financial position of Dolce...

Question 5 (Q 6)

The shareholders' equity section of the statement of financial position of Dolce Corporation as at December 31, 2020, is given below:

Shareholders' equity:
Preferred shares, $9 non-cumulative, unlimited authorized, 200,000 shares issued and outstanding	$ 5,000,000
Common shares, unlimited authorized, par value $30, 250,000 shares issued and outstanding	7,500,000
Retained earnings	4,500,000
Total shareholders' equity	$17,000,000

The board of directors for Dolce Corporation feels it is important that its shares trade at or below $50 per share in order to attract the maximum number of investors. The market price is currently $150 per share.

Required

What would you recommend to the board of directors in order to maintain the share price at $50 per share?

What would be the expected market price per share based on your recommendation in part “a” above?

Prepare the journal entry for your recommendation.

Expert Solution

What would you recommend to the board of directors in order to maintain the share price at $50 per share?

I recommended to board of directors to declared the stock-split.
Stock split helps to minimize the market price per share.

Current market price per share		$ 150
Divided: target market price per share		$ 50
Stock split ratio		3

Board of directors should be declared the 3-for-1 stock split in order to maintain the share price at $50 per share.

What would be the expected market price per share based on your recommendation in part “a” above?

Current market price per share		$ 150
Divided by: recommended stock split ratio		3
Expected market price per share		$ 50

Prepare the journal entry for your recommendation.

No journal entry would not be required for stock split.

Stock split should be affect on par value of common share, number of shares issued and outstanding
After stock split, par value of common share (30/3)		$ 10
After stock split, number of shares issued and outstanding (250000*3)		750,000

ekkarill92 answered 2 years ago

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