Question

On June 30, 2015, Sharper Corporation’s common stock is priced at $29.00 per share before any stock dividend or split, and the stockholders’ equity section of its balance sheet appears as follows.

  

Common stock—$4 par value, 80,000 shares authorized,   32,000 shares issued and outstanding	$	128,000
Paid-in capital in excess of par value, common stock		100,000
Retained earnings		228,000
Total stockholders’ equity	$	456,000

    

1.	Assume that the company declares and immediately distributes a 100% stock dividend. This event is recorded by capitalizing retained earnings equal to the stock’s par value. Answer these questions about stockholders’ equity as it exists after issuing the new shares.

a.,b.& c.	Complete the below table to calculate the retained earnings balance, total stockholders’ equity and number of outstanding shares.

                  

2.	Assume that the company implements a 2-for-1 stock split instead of the stock dividend in part 1. Answer these questions about stockholders’ equity as it exists after issuing the new shares.

a.,b.& c.	Complete the below table to calculate the retained earnings balance, total stockholders’ equity and number of outstanding shares.

                  

Answer 1

				Before	impact of	After stock
Stocks dividend				Stock	stock	dividend
				dividend	dividend
common stock				128,000	128,000	256,000
paid in capital in excess of par value				100,000	0	100,000
total contributed capital				228,000	128,000	356,000
Retained Earnings				228,000	-128,000	100,000
total stockholders Equity				456,000	0	456,000
number of common shares outstanding				32,000	32,000	64000
				Before	impact of	After stock
Stocks dividend				Stock	stock	dividend
				dividend	dividend
common stock				128,000	0	128,000
paid in capital in excess of par value				100,000	0	100,000
total contributed capital				228,000	0	228,000
Retained Earnings				228,000	0	228,000
total stockholders Equity				456,000	0	456,000
number of common shares outstanding				32,000	32,000	64,000