Question

CarFind Inc. showed the following equity information at December 31, 2019.

Common shares, unlimited shares authorized; 5,500,000 shares issued and outstanding	$	1,010,000
Retained earnings		1,542,500

On April 1, 2020, 350,000 common shares were issued at $0.70 per share. On June 1, the board of directors declared a 15% share dividend to shareholders of record on June 15; the distribution date was July 1. The market prices of the shares on June 1, June 15, and July 1 were $2.98, $1.86, and $2.36, respectively. On December 11, the board of directors declared a 2:1 share split to shareholders of record on December 15; the distribution date was December 20. Profit earned during the year was $1,462,500.


Required:
Prepare the company’s equity section on the December 31, 2020, balance sheet.

Answer 1

Working :

Number Of shares Outstanding :

	IN SHARES	IN $
Beginning Balance (shares)	5,500,000	1,010,000
Issued additional shares	350,000	350000*.70=245,000
Total shares outstanding	5,850,000	1,255,000
share dividend [5,850,000*15%]	877,500	877500*2.98= 2614950
Total shares outstanding	6,727,500	3,869,950
Shares after stock split [6727500*2/1]	13,455,000

The date of declaration is relevant among all Dates for making declaration of dividend and distribution .

Stock split does not have any impact on stockholders equity .The effect of stock split is only that it increases number of shares outstanding and decreases par value per share such that overall balance in par value of equity/(common stock) remains same.

Retained earning :

Beginning Balance	1542500
less:share dividend	(2614950)
Add:Profit earned	1,462,500.
Balance at end	390050

Solution :

CarFind Inc. BALANCE SHEET AS ON DECEMBER 31,2020
Stockholders equity
Common shares, unlimited shares authorized; 13,455,000 shares issued and outstanding	3,869,950
Retained earning	390050
Total stockholders equity	4,260,000