Question

Exercise 11-5 Stock dividends and splits LO P2 On June 30, 2017, Sharper Corporation’s common stock is priced at $28.50 per share before any stock dividend or split, and the stockholders’ equity section of its balance sheet appears as follows. Common stock—$8 par value, 75,000 shares authorized, 30,000 shares issued and outstanding $ 240,000 Paid-in capital in excess of par value, common stock 100,000 Retained earnings 340,000 Total stockholders’ equity $ 680,000 1. Assume that the company declares and immediately distributes a 100% stock dividend. This event is recorded by capitalizing retained earnings equal to the stock’s par value. Answer these questions about stockholders’ equity as it exists after issuing the new shares. a.,b.& c. Complete the below table to calculate the retained earnings balance, total stockholders’ equity and number of outstanding shares. 2. Assume that the company implements a 2-for-1 stock split instead of the stock dividend in part 1. Answer these questions about stockholders’ equity as it exists after issuing the new shares. a.,b.& c.

Answer 1

1
Stock Dividend	Before Stock Dividend	Impact of Stock Dividend	After Stock Dividend
Common stock	240,000	240,000	480,000
Paid in capital in excess of par value	100,000	0	100,000
Total contributed capital	340,000	240,000	580,000
Retained Earnings	340,000	-240,000	100,000
Total Stockholders' Equity	680,000	0	680,000
Number of common shares outstanding	30,000	30,000	60,000
2
Stock Split	Before Stock Split	Impact of Stock Split	After Stock Split
Common stock	240,000	0	240,000
Paid in capital in excess of par value	100,000	0	100,000
Total contributed capital	340,000	0	340,000
Retained Earnings	340,000	0	340,000
Total Stockholders' Equity	680,000	0	680,000
Number of common shares outstanding	30,000	30,000	60,000