Question

a company has following equity accounts. common stock($1 par value) 275,000.00 capital surplus 763,000.00 R/E 3,284,000.00 total owners equity 4,322,000.00 if the company decides on a four-for-one stock split. the firms 75-cent per share cash dividend on the new(post-split) shares represents an increase of 10% over last years dividend on pre -split stock. What effect does this have on the equity accounts? What was last years dividend per share?

Answer 1

	Effect on Different Equity Accounts
1	Effect on Common Stock account		Account Balance will not change
	Balance before split and after split =	= $275000
	Par value per share will be	=275000/1100000	0.25 per share
	No. of shares will be		1100000
2	Effect on Capital Surplus Account		Account balance will not change
	Balance before and after split	= $ 763000
3	Effect on Retained Earnings		Account Balance will be reduced by dividend paid of $825000
	Balance before Split and dividend			3284000
	Balance after split and dividend	=3284000-825000		2459000
4	Effect on Total owners equity		Total owners equity will be reduced by decrease by amount of dividend paid of $825000
	Balance before Split and dividend			4322000
	Balance after split and dividend	=4322000-825000		3497000
	Dividend per share of last year
	No. of Shares before Share split		275000	Shares
	No. of shares after split	=275000*4/1	1100000	Shares
	Dividend per share during current year		$                                         0.75	0
	Total Dividend after split	=0.75*1100000	$                                  825,000
	Increase in Dividend over previous year		10%
	Last year dividend	=825000*100/110	$                                  750,000
	Last year dividend per share	=750000/275000	$                                         2.73	Per share