Kolmeyer Steel Corporation (KSC) is a small specialty steel manufacturer located in northern Alabama. The Kolmeyer family has owned the company for several generations. Robert Kolmeyer is a major shareholder in KSC by virtue of his having inherited 200,000 shares of common stock in the company. Kolmeyer has not shown much interest in the business because of his enthusiasm for archaeology. However, when he received the minutes of the last board of directors meeting, he questioned a number of transactions involving stockholders’ equity.
He asks you as a person with knowledge of accounting to help him interpret the effect of these transactions on his interest in KSC.

You begin by examining the stockholders’ equity section of KSC’s December 31, 2010, balance sheet, which appears at the top of the next page. Then you read these relevant parts of the minutes of the board of directors meeting on December 15, 2011:

Item A The president reported the following transactions involving the company’s stock during the last quarter:

October 15. Sold 500,000 shares of authorized common stock through the investment banking firm of T.R. Kendall at a net price of $50 per share.

November 1. Purchased 100,000 shares for the corporate treasury from Lucy Kolmeyer at a price of $55 per share.

Item B The board declared a 2-for-1 stock split (accomplished by halving the par value and doubling each stockholder’s shares), followed by a 10 percent stock dividend. The board then declared a cash dividend of $2 per share on the resulting shares. Cash dividends are declared on outstanding shares and shares distributable. All these transactions are applicable to stockholders of record on December 20 and are payable on January 10. The market value of KSC stock on the board meeting date after the stock split was estimated to be $30.

Item C The chief financial officer stated that he expected the company to report net income for the year of $4,000,000.

Kolmeyer Steel Corporation
Balance Sheet
December 31, 2010
Stockholders’ Equity
Contributed capital
Common stock, $10 par value, 5,000,000
shares authorized, 1,000,000 shares
issued and outstanding.................................$10,000,000
Additional paid-in capital.................................25,000,000
Total contributed capital................................$35,000,000
Retained earnings.............................................20,000,000
Total stockholders’ equity..............................$55,000,000

1. Prepare a stockholders’ equity section of KSC’s balance sheet as of December 31, 2011 that reflects the above transactions.

2. Write a memorandum to Robert Kolmeyer that shows the book value per share and Kolmeyer’s percentage of ownership at the beginning and end of the year. Explain the difference and state whether Kolmeyer’s position has improved during the year. Tell why or why not and state how Kolmeyer may be able to maintain his percentage of ownership.