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# Dividends/stock split: Balance Sheet

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Balance Sheet

A firm's balance sheet has the following entries:
Cash \$30,000,000
Total Assets: 100,000,000
Common Stock (\$10,000,000 shares outstanding \$2 par) 20,000,000
Retained earnings 35,000,000

What will be each of these balance sheet entries after a
a) \$2 a share cash dividend
b) four-for-one split
c) 5 percent stock dividend (current price of the stock is \$20)

#### Solution Preview

a) When cash dividend is paid, cash will reduce and retained earnings will reduce. Total number of shares are 10,000,000 X \$2 = \$20,000,000 will be the amount. The balance sheet will be
Cash \$10,000,000 (reduce by 20,000,000)
Total Assets: 80,000,000 (reduce by 20,000,000)
Common Stock (\$10,000,000 shares outstanding \$2 par) ...

#### Solution Summary

The solution explains the impact on the balance sheet of a cash dividend, stock dividend and stock split

\$2.19

## Pittman Corporation Dividends, Stock Splits, Stockholder's Equity

See attached worksheets for completion of problems.

The stockholder's equity section of the balance sheet of Pittman Corporation as of December 31, 20x7, was as follows:

Contributed Capital
Common stock, \$4 par value, 500,000 shares authorized,
200,000 shares issued and outstanding \$800,000

Total Paid contributed capital \$1,800,000

Retained Earnings \$1,200,000

Total stockholder's equity \$3,000,000

Pittman Corporation had the following transactions in 20x8:
Feb 28. The board of directors declared a 10 percent stock dividend to stockholders of record on March 25 to be distributed on April 5. The market value on this date is \$16.

Mar. 25 Date of record for stock dividend.

Apr. 5 Issued stock dividend

Aug 3. Declared a 2 for 1 stock split

Nov 20 Purchased 18,000 shares of the company's common stock at \$8 per share for the treasury.

Dec. 31 Declared a 5 percent stock dividend to stockholders of record on January 25 to be distributed on February 5. The market value per share was \$9.

Required:
1. Record the stockholder's equity components of the transactions for Pittman Corporation in T accounts.

2. Prepare the stockholder's equity section of the company's balance sheet as of December 31 20x8. Assume net income for 20x8 is \$108,000.

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