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Electronic Corporation stock dividends and stock splits

An electronics corporation's common stock is selling for $44 per share, and its common stockholders' equity is shown here.
a. Show the impact of a 50% stock dividend.
b. Show the impact of a 3-for-2 stock split.
c. Describe how the stock market would react to each event. How would you explain the difference in reaction?

Paid-in capital ($4 par value; 5,000,000 shares) $ 20,000,000
Capital contributed in excess of par value 30,000,000
Retained earnings 50,000,000
Common stockholders' equity $100,000,000

Please show all equations used in detail

Solution Preview

I hope this explains it.

In a stock split, in this case 3 for 2, means that for every 2 shares a stockholder holds, the company exchanges 3, hence you should do this 5 million divided by 2 multiplied by 3 to get 7.5 million shares. OK?

However, the TOTAL paid in capital will NOT change in a stock split. hence, the it would still be 20 million. To get the par ...

Solution Summary

Describe how the stock market would react to each event. How would you explain the difference in reaction?

$2.19