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Chapter 13: Q11SE_2 (page 710)

Accounting for a stock split

Decor and More Imports recently reported the following stockholders’ equity:

Common Stock—\(1 Par Value; 490,000,000 shares

authorized, 119,000,000 shares issued and outstanding

Paid-In Capital:

654,000,000

\) 119,000,000

267,000,000

Retained Earnings

Total Stockholders’ Equity \( 921,000,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 148,000,000

Total Paid-In Capital

Suppose Decor and More split its common stock 2-for-1 in order to decrease the market price per share of its stock. The company’s stock was trading at \)17 per share immediately before the split.

Requirements

2. Were the account balances changed or unchanged after the stock split?

Short Answer

Expert verified

Common stock after stock splitchanged to $238,000,000

Step by step solution

01

Basic Introduction-

A stock split decreases the market price of a shares by increasing the quantity of shares that are outstanding by issuing more shares to the present shareholders.

02

The account balances changed after the stock split -

Commanstockaftersplit=Paidincapital×Split=119,000,000×21=$238,000,000

So the balanced were changed after the split.

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Most popular questions from this chapter

Determining paid-in capital for a corporation

Aruba Corporation recently organized. The company issued common stock to an inventor in exchange for a patent with a market value of \(57,000. In addition, Aruba received cash for 6,000 shares of its \)10 par preferred stock at par value and 6,500 shares of its no-par common stock at $20 per share. Without making journal entries, determine the total paid-in capital created by these transactions.

Question: Journalizing issuance of stock—at par and at a premium

Colorado Corporation has two classes of stock: common, \(3 par value; and preferred, \)30 par value.

Requirements

2. Journalize Colorado’s issuance of 4,500 shares of preferred stock for a total of $135,000

Identifying advantages and disadvantages of a corporation

Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.

d. Stockholders’ liability is limited.

Computing dividends on preferred and common stock and journalizing

The following elements of stockholders’ equity are from the balance sheet of Sneed Marketing Corp. at December 31, 2017:

800,000

Preferred Stock—4%, \(2 Par Value; 80,000 shares

authorized, 55,000 shares issued and outstanding

Paid-In Capital:

\) 110,000

Stockholders’ Equity

Common Stock—$0.10 Par Value; 8,750,000 shares

authorized, 8,000,000 shares issued and outstanding

Sneed paid no preferred dividends in 2017.

Requirements

2. Record the journal entries for 2018 assuming that Sneed Marketing Corp. declared the dividends on July 1 for stockholders of record on July 15. Sneed paid the dividends on July 31

Computing earnings per share and price/earnings ratio

Rocket Corp. earned net income of \(153,040 and paid the minimum dividend to preferred stockholders for 2018. Assume that there are no changes in common shares outstanding during 2018. Rocket’s books include the following figures:

Preferred Stock—6%, \)60 par value; 2,000 shares authorized, 1,000

shares issued and outstanding \( 60,000

Common Stock—\)5 par value; 80,000 shares authorized, 48,000 shares

issued, 46,700 shares outstanding 240,000

Paid-In Capital in Excess of Par—Common 470,000

Treasury Stock—Common; 1,300 shares at cost (26,000)

Requirements

2. Assume Rocket’s market price of a share of common stock is $12 per share. Compute Rocket’s price/earnings ratio.
See all solutions

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