Question

On June 30, 2017, Sharper Corporation’s common stock is priced at $62 per share before any stock dividend or split, and the stockholders’ equity section of its balance sheet appears as follows.

Common stock—$10 par value, 120,000 shares authorized, 50,000 shares issued and outstanding		$	500,000
Paid-in capital in excess of par value, common stock			200,000
Retained earnings			660,000
Total stockholders’ equity		$	1,360,000

1. Assume that the company declares and immediately distributes a 50% 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 3-for-2 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. Complete the below table to calculate the retained earnings balance, total stockholders’ equity and number of outstanding shares.

Answer 1

1
Stock Dividend	Before Stock Dividend	Impact of Stock Dividend	After Stock Dividend
Common stock	500,000	250,000	750,000
Paid in capital in excess of par value	200,000	0	200,000
Total contributed capital	700,000	250,000	950,000
Retained Earnings	660,000	-250,000	410,000
Total Stockholders' Equity	1,360,000	0	1,360,000
Number of common shares outstanding	50,000	25,000	75,000
2
Stock Split	Before Stock Split	Impact of Stock Split	After Stock Split
Common stock	500,000	0	500,000
Paid in capital in excess of par value	200,000	0	200,000
Total contributed capital	700,000	0	700,000
Retained Earnings	660,000	0	660,000
Total Stockholders' Equity	1,360,000	0	1,360,000
Number of common shares outstanding	50,000	25,000	75,000