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Stock Dividends and Stock Splits Statements

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Stock Dividends and Stock Splits: Stock dividends and stock splits are common forms of corporate stock distribution to stockholders

Consider each of the numbered statements. You are to decide whether it:

A. Applies to both stock dividends and stock splits.
B. Applies to neither.
C. Applies to stock splits only.
D. Applies to stock dividends only.
E. Applies to stock splits effected in the form of a dividend only.
F. Applies to both stock splits effected in the form of a dividend and a stock dividend.

(In each instance, the issuing company has only one class of stock.)

Enter next to the number of each statement below, the single capital letter of the description which applies to the statement.

1 There is no transfer between retained earnings and capital stock accounts, other than to the extent occasioned by legal requirements.

2 There is no change in the total stockholders' equity of the issuing corporation.

3 The retained earnings available for dividends are increased.

4 The par (or stated value) of the stock is unchanged.

5 Subsequent per-share earnings, if any, are decreased.

6 Retained earnings in the amount of the distribution are transferred to capital stock, in some instances in an amount in excess of that required by the laws of the state of incorporation.

7 The individual stockholder's share of net assets is increased.

8 The total number of shares outstanding is increased.

9 The distribution is a multiple as contrasted to a fraction of the number of shares previously outstanding.

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1. There is no transfer between retained earnings and capital stock accounts, other than to the extent occasioned by legal requirements. E

2. There is no change in the total stockholders' equity of the issuing corporation. A

3. ...

Solution Summary

The solution identifies whether the statements apply to both stock dividends and stock splits, to neither, to stock splits only, to stock dividends only, to stock splits effected in the form of a dividend only or applies to both stock splits effected in the form of a dividend and a stock dividend.

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See Also This Related BrainMass Solution

The following companies have different financial statistics. What dividend policies would you recommend for them? What changes would occur in the statement of net worth after a two-for-one stock split?

5. The following companies have different financial statistics. What dividend policies would you recommend for them? Explain your reasons.

Mathews Co. Aaron Corp.
Growth rate in sales and earnings . . . . . . . . . . . . . . 5% 20%
Cash as a percentage of total assets . . . . . . . . . . . 15% 2%

18. The Wallace Corporation has done very well in the stock market during the last three years-its stock has risen from $18 per share to $44 per share.
Its current statement of net worth is:

Common stock (3 million shares issued
at par value of $10 per share,
9 million shares authorized). . . . . . . . . . . . . .$30,000,000
Paid-in capital in excess of par . . . . . . . . . . . . . . . . . 15,000,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000,000
Net worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . $90,000,000

a. What changes would occur in the statement of net worth after a two-for-one stock split?
b. What would the statement of net worth look like after a three-for-one stock split?
c. Assume Wallace Corporation earned $6 million. What would its earnings per share be before and after a two-for-one stock split and after a three-for-one stock split?
d. What would the price per share be before and after the two-for-one and the three-for-one stock splits? (Assume that the price-earnings ratio of 22 stays the same.)
e. Should a stock split change the price-earnings ratio for Wallace?

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