Purchase Solution

# Stock split, stock dividends and stock issuance

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E 8.18 Stock splits versus stock dividends Assume the you own 600 shares of common stock of a company, that you have been receiving cash dividends of \$6 per share per year, and that the company has a 4-for-3 stock split.

Required:

a. How many shares of common stock will you own after the stock split?
b. What new cash dividend per share amount will result in the same total dividend income as you received before the stock split?
c. What stock dividend percentage could have accomplished the same end result as the 4-for-3 stock split?

P 8.20 Common and preferred stock-issuance and dividends Permabilt Corp. was incorporated on January 1, 2010, and issued the following stock for cash:
3,600,000 shares of no-par common stock were authorized; 1,050,000 shares were issued on January 1, 2010, at \$46 per share.
1,200,000 shares of \$100 par value, 10.5% cumulative, preferred stock were authorized, and 420,000 shares were issued on January 1, 2010, at \$132 per share.
Net income for the years ended December 31, 2010, 2011, and 2012, was \$15,750,000, \$22,350,000, and \$26,100,000, respectively.
No dividends were declared or paid during 2010 0r 2011. However, on December 17, 2012, the bored of directors of Permabilt Corp. declared dividends of \$37,200,000, payable on February 9, 2013, to holders of record as of January 4, 2013.

Required:

a. Use the horizontal model (or write the entry) to show the effects of
1. the issuance of common stock and preferred stock on January 1, 2010.
2. the declaration of dividends on December 17, 2012.
3. the payment of dividends on February 9, 2013.
b. Of the total amount of dividends declared during 2012, how much will be received by preferred shareholders?

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The solution explains some questions relating to stock split, stock dividends and stock issuance

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8.18 a. The stock split will give you 4 shares for each share held. Currently we have 600 shares. Number of shares after the stock split would be 600/3 X 4 = 800.

b. Currently we get a total dividend of \$6 per share X 600 shares = 3,600. Now we have 800 shares. To get the same total dividend, the dividend per share would be 3,600/800 = \$4.50

c. The stock dividend would be such that we get 200 ...

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