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Retained Earnings Balance after Dividend; Market Price

10) Murphy's, Inc. has 10,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $8 per share. The balance sheet shows $32,500 in the capital in excess of par account, $10,000 in the common stock account, and $42,700 in the retained earnings account. The firm just announced a 10% (small) stock dividend.

a) What will the balance in the retained earnings account be after the dividend?
b) What will the market price per share be after the dividend?

Please use Excel.

Solution Preview

Please see the attached Excel 97-2003 spreadsheet for format and formulas.

Murphy's, Inc. has 10,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $8 per share. The balance sheet shows $32,500 in
the capital in excess of par account, $10,000 in the common stock account, and $42,700 in the retained earnings account. The ...

Solution Summary

This solution illustrates how to compute the balance in retained earnings after a stock dividend has been declared and paid, and the effect of that dividend on the market price per share.

$2.19