Id Jit Company\'s Shareholders\' Equity section of the balance sheet on December

Question

Id Jit Company's Shareholders' Equity section of the balance sheet on December 31, 2015, was as follows: On January 4,2016 Id Jit declared and issued a 10% stock dividend, when the shares were selling for S20 per share Then on March 30,2016, it declared and issued a 2-for-l stock split. How many shares are outstanding at year-end? What is the book value per share of these shares i the Comman stock account? Develop the Shareholders Equity category of Id Jit's balance sheet as of December 31. 2016.

Explanation / Answer

1. Shares outstanding at the year end are 120,000 shares.

Notes: A stock split is an action by which a company lowers the face value of its stocks, simultaneously increasing the number of outstanding shares, but keeping the company's total capital base intact.

Here, company declared 2:1 stock split, it means that its shareholders will own two shares for every one held by them previously, but at half the face value. So the company's outstanding shares will double to 120,000, while the face value per share will halve to Rs 9 (i.e, $1,080,000 / 60,000shares = $18 per share / 2 =$9per share).

2.Book value per share = $18 per share (i.e, $1,080,000 / 60,000shares = $18 per share).

3. Share holder's equity category of Jit's Balance sheet as of December 31, 2016.

Stock holder's equity Amount in $ Common stock 120,000 no par shares issued and outstanding 1,080,000 Retained earnings 1,240,000 - (10% of 1,080,000 dividend paid 10%)
= 1,240,000 - 108,000 = 1,132,000 1,132,000 Total Stock holder's equity $2,212,000

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