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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
Additional paid-in capital 5,000,000
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)

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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