Problem 3 Gordon\'s Meats has 6,500 shares of stock outstanding. The market valu

Question

Problem 3

Gordon's Meats has 6,500 shares of stock outstanding. The market value is $26.50 per share. The statement of financial position shows $48,200 common stock account, and $142,900 in the retained earnings account. The firm just announced a 5 percent stock dividend. What will the balance be in the common stock and retained earnings accounts after the dividend?

Problem 4

Berk currently has 650,000 shares of stock outstanding that sell for $75 per share. Assuming no market imperfections or tax effects exist, what will the share price and the new number of shares after:

a.Berk has a six-for-four stock split?

b.Berk has a 17 percent stock dividend?

c.Berk has a 38.5 percent stock dividend?

d.Berk has a four-for-six reverse stock split?

Explanation / Answer

1)

total no. of shares = 6500

share price = 26.5

common stock a/c = 48,200

this means the no. of shares with the company = 48200/26.50 ~ 1818 shares

dividends given = 5% of 26.5 = 1.325 per share

increase in common stock a/c = 1818 * 1.35 = 2408.85

final common stock a/c = 48200 + 2408.85 = 484408.50

shares with the public (not with company) = 6500 - 1818 = 4682

dividends paid to public = 4682 * 1.325 = 6203.65

total dividends paid = 6500 *1.325 = 8612.5

initial retained earnings a/c = 142900

final retained earnings a/c = initial retained earnings - total dividends paid = 142900 - 8612.5 = 134287.50

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