Stock Dividends, Stock Splits, and Reverse Splits

Partial Balance Sheet – Owners’ Equity Entries

Common Stock (400,000 shares @ $1 Par) $ 400,000

Paid-in Capital in Excess of Par 2,000,000

Retained Earnings 5,000,000

Total Owners’ Equity $7,400,000

Assume the stock is currently selling for $20 per share.

1. What did the common stock sell for (price per share) when initially issued?

2. What is the company’s market capitalization?

3. Assume the company issues a 15 percent stock dividend.

a. How many total shares will the company now have issued?

c. Estimate the market price per share after the stock dividend?

d. Prepare the stockholders’ equity entries to reflect the stock dividend.

4. Return to the initial Owners’ Equity entries. Assume the company issues a 40 percent stock dividend.

a. How many total shares will the company now have issued?

b. Estimate the market price per share after the stock dividend?

c. Prepare the stockholders’ equity entries to reflect the stock dividend.

5. Return to the initial Owners’ Equity entries. Assume the company announces a 4 for 1 stock split.

a. How many total shares will the company now have issued?

b. Estimate the market price per share after the stock split?

c. Prepare the stockholders’ equity entries to reflect the stock split.

6. Return to the initial Owners’ Equity entries. Assume the company announces a 1 for 5 Reverse Split.

a. How many total shares will the company now have issued?

b. Estimate the market price per share after the reverse split?

c. Prepare the stockholders’ equity entries to reflect the reverse split.