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# Stock Split and Equity Accounts

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The owners' equity accounts for a company are shown here:

Common stock (\$1 par value) \$ 8,000
Capital surplus 156,000
Retained earnings 510,000
=======
Total owners' equity \$674,000

a. If the company declares a 4-for-1 stock split, there will now be __32,000__shares (Round answers to nearest whole number) outstanding at a par value of \$__?__per share (Round answer to 2 decimal places). The equity accounts will or will not change ? __will not__

b. If the company declares a 1-for-3 reverse stock split, there will now be __24,000__ shares (Round answers to nearest whole number) outstanding at a par value of \$ __3__ per share (Round answer to nearest whole dollar). The equity accounts will or will not change? __will not__

this is what i have so far:
a. 8,000x 4/1 =32,000 but the second part i dont know

b. 8,000x 3/1= 24,000<---- but this is not right and the second part is 3 which is right can you please assist me with the rest

#### Solution Preview

In stock split the number of shares are increased the the par value goes down proportinately. A 4 for 1 stock split would increase the number of shares 4 times ...

#### Solution Summary

The solution explains the impact of a stock split and reverse stock split on the stockholders equity accounts of a company

\$2.19

## Stock Dividends

19-2: EXCEL: Stock Dividends: The owners' equity accounts for Hexagon International are shown here:
Common stock (\$1 par value) \$20,000
Capital surplus 210,000
Retained earnings 735,300
Total owners' equity \$965,300

a. If Hexagon stock currently sells for \$48 per share and a 10 percent stock dividend is declared, how many new shares will be distributed? Show how the equity accounts would change.

b. If Hexagon declared a 25 percent stock dividend, how would the accounts change?
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19-4: EXCEL: Stock Splits and Stock Dividends. Roll Corporation (RC) currently has 260,000 shares of stock outstanding that sell for \$78 per share. Assuming no market imperfections or tax effects exist, what will the share price be after:

a. RC has a five-for-three stock split?
b. RC has a 15 percent stock dividend?
c. RC has a 42.5 percent stock dividend?
d. RC has a four-for-seven reverse stock split?
________________________________________

20-5: The St. Anger Corporation needs to raise \$35 million to finance its expansion into new markets. The company will see new shares of equity via a general cash offering to raise the needed funds. If the offer price is \$31 per share and the company's underwriters charge an 8 percent spread, how many shares need to be sold?
________________________________________

20-6: EXCEL: Calculating Flotation Costs: In the previous problem if the SEC filing fee and associated administrative expenses of the offering are \$900,000, how many shares need to be sold?
________________________________________

21-7: EXCEL: Super Sonics Entertainment is considering buying a machine that costs \$435,000. The machine will be depreciated over five years by the straight-line method and will be worthless at that time. The company can lease the machine with year-end payments of \$107,500. The company can issue bonds at a 9 percent interest rate. If the corporate tax rate is 35 percent, should the company buy or lease?

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