Question

The Strasburg Company’s stock currently trades at $90 per share. Below is their partial balance sheet:

Common Stock (1,500,000 shares outstanding) 30,000,000

Retained Earnings 15,000,000

Total 45,000,000

a) The company is considering a 3 for 2 stock split. What will be the company’s stock price following the stock split? How many shares will be outstanding? Show any changes to the Balance sheet.

b) If instead, the company does a 7% stock dividend. What will be the company’s stock price following the stock dividend? How many shares will be outstanding? Show any changes to the Balance sheet.

Answer 1

Statement Showing No. Share and changes in Balancesheet( Equity section) in both option
	Before Action	After Stock Dividend	After Stock Split
Stockholder's Equity
Paid in Capital	$30,000,000	$39,450,000	$39,450,000
Retained Earning	$15,000,000	$5,550,000	$5,550,000
Total Stockholder's Equity	$45,000,000	$45,000,000	$45,000,000
Outstanding shares ( No. of Share)	1,500,000	1,605,000	2,250,000
Working Note for No. of Share after Stock Dividend
No of share issued as Stock dividend
= 1500000 Share*7%=	105000 Sahre
Revised Paid in Capital	$39,450,000
=$30000000+(105000*$90)
Retained Earning Balance	$5,550,000
=$15000000-(150000*$90)
Working Note for No. of Share after StockSplit
No. of Existing Share	1500000 Share
Revised No. of Share after stock Split	2250000 Share
(1500000 share*3/2)