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Homework answers / question archive / 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

Finance

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)

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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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