Assume Andrusco\'s common stock is quoted on the OTCBB at 159 7/19. The VP of Fi

Question

Assume Andrusco's common stock is quoted on the OTCBB at 159 7/19. The VP of Finance recommends a 4-for-l split to increase trading activity. Show the effects of this action on the BS, and on a shareholder of the company. Assume Andrusco's stock is trading in the Pink Sheets at 1 1/11. The VP of Finance recommends a l-for-10 split. Show the effects of this action on the BS and a shareholder. Andrusco has just announced a 12% stock dividend with the stock priced at (S3.79. Show the effects of this action on the company's BS and a shareholder.

Explanation / Answer

Andrsuco Corp a Current no of common stock outstanding            20,000,000 b Currrent Par value of common stock per share                               1 c Current Market Value per common stock                  159.368 d After 4:1 split the situatio will be No of shares outstanding            80,000,000 Par value per share                       0.250 Market Price per share                       39.84 Total value wise there will be no change in Balance Sheet of company or on share holder only par value per share and market value per share will be 1/4 th previous and no of shares will be 4 times that of previous 1 Balance sheet of company Common Stock par value 0.250(80million)            20,000,000 Shareholders account Investment in shares (par value 0.250) Previous value no of share 4x of previous 2 Assume stock price per share is                       1.091 Situation afetr 1:10 split No of shares outstanding              2,000,000 Par value per share                    10.000 Market Price per share                       10.91 Total value wise there will be no change in Balance Sheet of company or on share holder only par value per share and market value per share will be 1/4 th previous and no of shares will be 4 times that of previous Balance sheet of company Common Stock par value 10(2 million outstanding)            20,000,000 Shareholders account Investment in shares (par value 10) Previous value no of share 1/10th of previous 3 Current no of common stock outstanding            20,000,000 Stock dividend 12% is equivalent to no of new issues of common shares =              2,400,000 Market Price per share                       63.79 Par value                               1 effetct in Balance sheet on declaration of Stock dividend will be debit to Retailed earning and credit to stock dividend distributable Journal Entry Dr $ Cr $ Retained Earning              2,400,000 Stock Dividend Distributable            2,400,000 change in Balacne in concerned a/cs after stock dividend declaration Retained Earning            37,600,000 Stock Dividend Distributable              2,400,000 After stock dividend issue , Current no of common stock outstanding            22,400,000 Value of common stock            22,400,000 Reduction in Retained earning          (22,400,000) There is effectively no change in Balance Sheet as total Outstanding common stock no and total amount will increase but Retained earning will reduce by same amount. So total sharholders equity will be same. For a shareholder also , the no of shares will increase but the value per share will reduce leading to same value as before

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