stock transactions Identify the effects-both the direction and the dollar amount
ID: 2582088 • Letter: S
Question
stock transactions Identify the effects-both the direction and the dollar amount-of these assumed transactions on the total stockholders' equity of Townsend Corporation. Each transaction is independent. a. b. c. Declaration of cash dividends of $76 million. Payment of the cash dividend in (a). A 20% stock dividend. Before the dividend, 72 million shares of$1.00 par common stock were outstanding; the market value was $3.875 at the time of the dividend d. A 40% stock dividend. Before the dividend, 72 million shares of $1.00 par common stock were outstanding; the market value was $14.25 at the time of the dividend. Purchase of 1,700 shares of treasury stock (par value $1.00) at $3.25 per share. Sale of 800 shares of the treasury stock for $6.00 per share. Cost of the treasury stock was $3.25 per share. e. . g. A2-for-1 stock split. Prior to the split, 72 million shares of $1.00 par common stock were outstandingExplanation / Answer
a.)Declaration of Cash Dividends of $76 million – Decrease Stockholder’s Equity by $76 million. - Decreasing Retained Earnings.
b.)Payment of Cash Dividend in (a) – No Effect.
c.)20% Stock Dividend – No Effect. - Reshuffling of Equity Funds from Retained Earnings to Paid-In Capital.
d.)40% Stock Dividend – No Effect. - Rearrangement like above.
e.)Purchase of 1700 Treasury Shares (Par Value $1.00) at $3.25 per share – Decrease Stockholder’s Equity by $5,525 (1700 Shares x $3.25 per share). - Reduction of Equity, since Shares are Bought-Back.
f.)Sale of 800 Shares of Treasury Stock for $6.00 per share – Increase Stockholder’s Equity by $4,800 (800 Shares x $6.00 per share). - Increase in No. of Outstanding Shares, hence Increase in Equity.
g.)2-for-1 Stock Split – No Effect. - No Infusion or Erosion of Capital, hence No Effect on Equity.
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