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The stockholder equity accounts for a corporation are shown here: Common stock (€3 par value) Capital surplus Retained earnings Total stockholders’ equity Instructions: €90,000 300,000 510,000 900,000 1
The stockholder equity accounts for a corporation are shown here:
Common stock (€3 par value) Capital surplus
Retained earnings
Total stockholders’ equity
Instructions:
€90,000 300,000
510,000 900,000
1. If the company’s stock currently sells for €34 per share and a 15 percent stock dividend is declared, how many new shares will be distributed? Show how the equity accounts would change. (10 points)
2. If the company declares a three-for-two stock split, how the equity accounts will change? How many shares are outstanding now? What is the new par value per share? (10 points)
Expert Solution
Part (1)
Number of shares outstanding currently = Common stock / par value per share = 90,000 / 3 = 30,000
New shares issued = 15% = 15% x 30,000 = 4,500
And the equity accounts will change as per table below:
| Before | After | How it has been calculated? | |
| Common stock | 90,000 | 103,500 | = 90,000 + 4,500 x 3 |
| Capital surplus | 300,000 | 439,500 | = 300,000 + 4,500 x (34 - 3) |
| Retained Earnings | 510,000 | 357,000 | = 510,000 - 4,500 x 34 |
| Total stockholders' equity | 900,000 | 900,000 |
Part (2)
After stock splits, the magnitude of the equity accounts will remain same as before.
| Before | After | |
| Common stock | 90,000 | 90,000 |
| Capital surplus | 300,000 | 300,000 |
| Retained Earnings | 510,000 | 510,000 |
| Total stockholders' equity | 900,000 | 900,000 |
Shares outstanding now = Old number of shares x 3 / 2 = 30,000 x 3 / 2 = 45,000
And the new par value per share = Old par value x 2/3 = 3 x 2/3 = 2
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