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# The Effect of Stock Issuance, Dividends and Depreciation.

The directors of Caldwell Corp. are trying to decide whether they should issue par or no par stock. They are considering three alternatives for their new stock, which they are assuming will be issued at \$8 per share. The alternatives are: (A) \$5 par value, (B) no par with a \$1 stated value, and (C) no par, no stated value. If 60,000 shares are issued, what amount will be credited to the common stock account in each of these cases?
(A) (B) (C)
a. \$60,000 \$300,000 \$480,000
b. \$60,000 \$480,000 \$480,000
c. \$480,000 \$480,000 \$480,000
d. \$300,000 \$60,000 \$480,000

____ What is the effect on total paid-in capital of a stock dividend and a stock split, respectively?
Stock Dividend Stock Split
a. Increase No effect
b. No effect No effect
c. Decrease No effect
d. Decrease Decrease

____ Felker Company changed from the straight-line method to the double-declining-balance method of depreciation during 2000 for equipment purchased for \$300,000 on January 1, 1998. The equipment has an estimated 5-year life with no salvage. Felker's tax rate is 40%. Felker should report depreciation expense and a cumulative effect of change in accounting principle in 2000 of
Depreciation Expense Cumulative Effect
a. \$43,200 \$43,200
b. \$28,800 \$28,800
c. \$25,920 \$41,920
d. \$43,200 \$72,000

#### Solution Preview

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The directors of Caldwell Corp. are trying to decide whether they should issue par or no par stock.
They are considering three alternatives for their new stock, which they are assuming will be issued
at \$8 per share. The alternatives are: (A) \$5 par value, (B) no par with a \$1 stated value, and (C)
no par, no stated ...

#### Solution Summary

The Effect of Stock Issuance, Dividends and Depreciation on Company Valuation.

\$2.19