HOLMES EQUITY PROBLEM EachOuestionworthPoints Holmes Inc. has the following item

Question

HOLMES EQUITY PROBLEM EachOuestionworthPoints Holmes Inc. has the following items in their current balance sheet: Common Stock 1,00,00 shares authorized,20,0 isued5800.000 Capital Surplus Treasury Stock on Common 50,000 shares Cumulative Preferred Stock 5,000,000 authorized $4,000,000 13%) S50 par $6,000,000 $40,000,000 Retained Earnings 1. Holmes Ine. wishes to announce a total cash dividend of $10,000,000. How is this dividend to be split between the common and preferred stockholders? Show dollar values. 2. What is the dividend payment per share for the preferred and the common shares outstanding? 3. Suppose Holmes Inc. was two years in the arrears in paying dividends to the preferred stockholders, what is the dollar amount of the preferred and common shareholder dividends? 4. How many Holmes Inc. common stock shares are outstanding? 5. Could Holmes Ine. announce a 5 for 1 stock split on common stock? 6. Could Holmes Inc. offer a 4 for 1 stoek split on the preferred shares? 7. If Holmes Inc. were to provide for a 20% common stock dividend when the market price of the common stock was $30 per share then what would be the journal entry to record the stock dividend? determine the amount of the total equity in Holmes Inc.? what would the new par value per share be? 8. Using the equity portion of the Holmes Inc. balance sheet above, 9. If Holmes Inc. announced a 4 for 1 reverse stock split on common stock

Explanation / Answer

Requirement 1: Splitting of Dividend: Particulars Amount($) Preference Shareholders 6000000*3% 180000 Equity Shareholders 10000000-180000 9820000 10000000 Requirement 2: Dividend payment per share: Particulars Amount($) Preference Shareholders Total Dividend 180000 Outstanding Preference Shareholders 6000000/50 120000 Dividend per share 180000/120000 1.5 Equity Shareholders Total Dividend 9820000 Oustanding Equity Shares 200000 Dividend per share 9820000/200000 49.10 Requirement 3: Dollar amount of Dividend: Preference Shareholders Present Dividend 180000 Arrears of Dividend 2*180000 360000 540000 Equity Shareholders 10000000-540000 9460000 10000000 Requirement 4: Common Stock Shares Outstanding 200000

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