Question

# On June 30, Sharper Corporation’s stockholders' equity section of its balance sheet appears as follows before...

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.

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

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