Stock Dividends, Stock Splits, and Reverse Splits

Partial Balance Sheet Owners Equity Entries

Common Stock (400,000 shares @ $1 Par) $ 400,000

Paid-in Capital in Excess of Par 2,000,000

Retained Earnings 5,000,000

Total Owners Equity $7,400,000

Assume the stock is currently selling for $20 per share.

1. What did the common stock sell for (price per share) when

initially issued?

2. What is the companys market capitalization?

3. Assume the company issues a 15 percent stock dividend.

a. How many total shares will the company now have issued?

c. Estimate the market price per share after the stock dividend?

d. Prepare the stockholders equity entries to reflect the stock

dividend.

4. Return to the initial Owners Equity entries. Assume the company

issues a 40 percent stock dividend.

a. How many total shares will the company now have issued?

b. Estimate the market price per share after the stock dividend?

c. Prepare the stockholders equity entries to reflect the stock

dividend.

5. Return to the initial Owners Equity entries. Assume the company

announces a 4 for 1 stock split.

a. How many total shares will the company now have issued?

b. Estimate the market price per share after the stock split?

c. Prepare the stockholders equity entries to reflect the stock

split.

6. Return to the initial Owners Equity entries. Assume the company

announces a 1 for 5 Reverse Split.

a. How many total shares will the company now have issued?

b. Estimate the market price per share after the reverse split?

c. Prepare the stockholders equity entries to reflect the

reverse split.