On June 30. 2015. Sharper Corporation\'s common stock is priced at $62 per share

Question

On June 30. 2015. 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 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 pan! 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 the difference, if any. to a stockholder from receiving new shares distributed under stock dividend versus a stock split. The stockholders' equity of TVX Company at the beginning of the day on February 5 follows

Explanation / Answer

1) Company declares and distributes 50% stock dividend

a) Retained Earning balance = $ 660000- $ 250000 = $410000

b) Amount of total Stockholder equity will not change = $1360000

c)Nos. of shares outstanding = 50000+25000(Stock dividend) = 75000 at par value of $10

2) If company implements a 3 for 2 stock spilt instead of stock dividend

a) Amount of retained earnings will not change = $660000

b)Amount of total Stockholder equity will not change = $1360000

c)Nos. of shares outstanding = 50000/2*3 = 75000 at par value of $6.67

3)Neither stock spilts nor stock dividends results in an increase in the stockholder's wealth.Stock spilts are simply a realinging of the company number of outstanding shares i.e. change in par value nor the stock actual value.When a compnay declares the stock dividend , number of shares and book value increased but there is reduction in market value of the shares. In both the cases the total stockholder's equity will not be changed.

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