On June 30, 2013, Sharper Corporation\'s common stock is priced at $62 per share
ID: 2488005 • Letter: O
Question
On June 30, 2013, Sharper Corporation's common stock is priced at $62 per share before any stock dividend or split, and the stockholders' equity section of its balance sheet appears as follows, Assume that the company declares and immediately distributes a 50% stock dividend. This event is recorded by capitalizing retained earnings equal to the stock's par value. Answer these questions about stockholders' equity as it exists after issuing the new shares. What is the retained earnings balance? What is the amount of total stockholders' equity? How many shares are outstanding? Assume that the company implements a 3-for-2 stock split instead of the stock dividend in part 1. Answer these questions about stockholders' equity as it exists after issuing the new shares. What is the retained earnings balance? What is the amount of total stockholders' equity? How many shares are outstanding? Explain are difference, if any, to a stockholder from receiving new shares distributed under a large stock dividend versus a stock split.Explanation / Answer
1.
a.
Calculate the retained earnings balance:
Details
Amount
Beginning balance of retained earnings
$ 660,000
Less: Issue of stock dividend
(50,000 shares * $10 * 50%)
$ 250,000
Ending balance of retained earnings
$ 410,000
Therefore, the balance of retained earnings is $410,000.
b.
Calculate the amount of total stockholders’ equity:
Details
Amount
Beginning balance of stockholders' equity
$ 500,000
Add: Issue of stock dividend @50%
$ 250,000
Ending balance of stockholders' equity
$ 750,000
Therefore, the balance of stockholders’ equity is $750,000.
c.
Calculate the how many shares are outstanding:
Details
Amount
Beginning balance of shares
($500,000 /$10)
50,000
Add: Issue of stock dividend @50%
($250,000 /$10)
25,000
Ending balance of shares
75,000
Therefore, balance of shares is 75,000.
2.
a.
Calculate the retained earnings balance:
Therefore, the balance of retained earnings is $660,000.
b.
Calculate the amount of total stockholders’ equity:
Therefore, the balance of stockholders’ equity is $500,000. If the organization total stockholders' equity, liabilities, assets, and are the same, as before the stock split, doubling the number of shares and after the split off shares.
c.
Calculate the how many shares are outstanding:
Details
Amount
Beginning balance of shares
($500,000 /$10)
50,000
Add: Stock split 3 for 2
(50,000 *3/2)
75,000
Ending balance of shares
125,000
Therefore, balance of shares is 125,000.
3.
The difference between issue of stock dividend increase the stockholders’ equity, number of shares and decrease in retained earnings balance. When issue of stock split 3 for 2 except number of shares issued remaining are same (i.e., shareholders’ equity and retained earnings balance).
Details
Amount
Beginning balance of retained earnings
$ 660,000
Less: Issue of stock dividend
(50,000 shares * $10 * 50%)
$ 250,000
Ending balance of retained earnings
$ 410,000
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