Question

On June 30, Sharper Corporation’s stockholders' equity section of its balance sheet appears as follows before any stock dividend or split. Sharper declares and immediately distributes a 50% stock dividend. Common stock—$10 par value, 120,000 shares authorized, 74,000 shares issued and outstanding $ 740,000 Paid-in capital in excess of par value, common stock 320,000 Retained earnings 720,000 Total stockholders’ equity $ 1,780,000 Assume that instead of distributing a stock dividend, Sharper did a 3-for-1 stock split. Required: (1) Prepare the updated stockholders' equity section after the split. (2) Compute the number of shares outstanding after the split.

Answer 1

1. Updated Stockholder's Equity Section

Particulars	Amount
Common stock-$3.3333 par value, 360,000 shares authorised, 222,000 shares issued and outstanding	$740,000
Paid in capital in excess of par value, common stock	$320,000
Retained Earnings	$720,000
Total Stockholder's Equity	$1,780,000

Sharper has done a 4-for-1 stock split. When a stock splt is done, it does not generate any funds. Only the number of shares outstanding will increase decreasing the par value of a share.

2. No of shares outstanding after the split

Sharper has done a 4-for-1 stock split.

No of shares before the split = 74,000

Ratio of split is 3-for-1

Therefore no of shares after the split = 74,000 * 3

= 222,000 shares of $3.3333 each