Question

The stockholders’ equity of TVX Company at the beginning of the day on February 5 follows:...

The stockholders’ equity of TVX Company at the beginning of the day on February 5 follows:

Common stock—$25 par value, 150,000 shares
authorized, 72,000 shares issued and outstanding		 $ 1,800,000
Paid-in capital in excess of par value, common stock 525,000
Retained earnings 675,000
Total stockholders’ equity $ 3,000,000


On February 5, the directors declare a 12% stock dividend distributable on February 28 to the February 15 stockholders of record. The stock’s market value is $39 per share on February 5 before the stock dividend. The stock’s market value is $35 per share on February 28.

1. One stockholder owned 800 shares on February 5 before the dividend. Compute the book value per share and total book value of this stockholder’s shares immediately before and after the stock dividend of February 5. (Round your "Book value per share" answers to 3 decimal places.)
2. Compute the total market value of the investor’s shares in part 2 as of February 5 and February 28.

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Answer #1

1.

Particulars $ Per Share Value Remark
Par Value of One Share 25
Share Premium Per Share 7.29
(525000/72000)
Total Paid in Value of one share 32.290
No. of Shares hold by Shareholder 800
Book Value of Share to him before dividend (This will be the Value paid by him for acquiring the shares i.e. @ 32.29 for 800 shares) 25832.000 32.290 Book Value for shareholder before dividend
Book Value of Shares after Dividend is declared on Feb 5 25832.000 32.290 As Dividend is to be given for Shares hold at 15th Feb hense right to receive dividend will be established on 15th Feb only. Hence the dividend will be recorded on that day. Further one more view is there, Dividend will be taken as the income hence it will not impact the Book Value of share.

2.

Particulars Per Share Value No. of Sahres hold Total Value Remark
Market Value of Share on Feb 5 (Before Dividend) 39 800                  31,200.00 Per Share Value Given in Ques
Market Value of Share on Feb 5 (After Dividend) 36 800                  28,800.00 Refer Working below
Market Value of Share on Feb 28 35 800                  28,000.00 Per Share Value Given in Ques
Working
Market Value of Share on Feb 5 (Before Dividend) 39
Dividend per share (12% of $ 25) 3 After Dividend declaration market value will fall by Dividend amount
Market Value of Share on Feb 5 (After Dividend) 36
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