On July 1, 2010, Jones Corporation had the following capital structure: Complete

Question

On July 1, 2010, Jones Corporation had the following capital structure: Complete the following table based on three independent cases involving stock transactions (Round your par value answers to 2 decimal places. Omit the "$" sign in your response): case 1: The board of directors declared and issued a 10 percent stock dividend when the stock price was $9 per share. Case 2: The board of direction declared and issued a 100 percent stock dividend when the stock price was $9 per share. The board of directors voted a 2-for-1 stock split. The stock price prior to the split was $9 per share.

Explanation / Answer

Completed table is shown as below:

Case 1. 10% stock dividend is 154,000*10% = 15,400*9 = 138,600

so Retained earning will reduce by 138,600

Common stock will increase by 15,400

and Additional paid in capital by 123,200

Case 2.

As the stock dividend is 100% which is very large so the same will be recorded at par value 154,000*100% = 154,000*1 = 154,000 which will be moved from Retained earnings to common stock.

Case 3.

stock split will reduce the par value and increase the number of shares.

As cash is not paid so equity will not change.

Case 1 Case 2 Case 3 Items Before stock transactions After 10% Stock dividend After 100% Stock dividend After Stock split Number of shares outstanding 1,54,000 169400 308000 308000 Par per share 1 1 1 0.5 Common stock 1,54,000 169400 308000 154000 Additional Paid in capital 81,000 2,04,200 81,000 81,000 Retained earnings 1,75,000 36400 21000 1,75,000 Total stockholders equity 4,10,000 4,10,000 4,10,000 4,10,000

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