Kosmier Company has outstanding 500,000 shares of $50 par value common stock tha
ID: 2361157 • Letter: K
Question
Kosmier Company has outstanding 500,000 shares of $50 par value common stock that originally sold for $60 per share. During the three most recent years, the company carried out the following activities in the order presented: declared and distributed a 10 percent stock dividend, declared and paid a cash dividend of $1 per share, declared and distributed a 2-for-1 stock split, and declared and paid a $0.60 per share cash dividend.. Determine the amount of cash that the company paid in the four transactions described above. (Omit the "$" sign in your response.) Assume If you were a stockholder who held 100 shares of stock that you purchased four years ago when the market value of the shares was $65, how many shares would you own after the four transactions described above?Explanation / Answer
Kosmier Company has outstanding 500,000 shares of $50 par value common stock that originally sold for $60 per share. During the three most recent years, the company carried out the following activities in the order presented: declared and distributed a 10 percent stock dividend, declared and paid a cash dividend of $1 per share, declared and distributed a 2-for-1 stock split, and declared and paid a $0.60 per share cash dividend.. Determine the amount of cash that the company paid in the four transactions described above. (Omit the "$" sign in your response.) Assume If you were a stockholder who held 100 shares of stock that you purchased four years ago when the market value of the shares was $65, how many shares would you own after the four transactions described above?
10% stock dividend: 500,000 shares 1.10 = 550,000 shares
2:1 stock split: 550,000 2 = 1,100,000 shares
Cash paid $ 1,210,000
: $1 cash dividend: 550,000 shares $1 = $550,000 $.60 cash dividend: 1,100,000 shares $.60 = $660,000
Total cash paid: $550,000 + $660,000 = $1,210,000
=No cash is paid out with a stock dividend or a stock split.: 220 shares [(100 shares 1.10) 2]
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(b) If the market value of the stock was $40 after the four transactions, would you be better or worse off than before the four transactions?
Market value of portfolio before the four transactions: 100 shares $65 = $6,500
Market value of portfolio after the four transactions: 220 shares $40 = $8,800
Your portfolio after the four transactions is $8,800 compared to $6,500 before the four transactions. In addition, you would have received cash dividends,
as follows: (100 shares 1.10 $1) + (110 shares 2 $.60) = $110 + $132 = $242
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