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Firm A had the following selected items on its balance sheet: Cash: 28, 000, 000 Common...

Firm A had the following selected items on its balance sheet:

Cash: 28, 000, 000

Common stock (50 par, 2, 000, 000 shares outstanding) 100, 000,000

Additional paid in capital 10, 000, 000

Retained earnings 62, 000, 000

HOw would each of these accounts look after:

A. A cash dividend of 1 dollar a share

B A 5 percent stock dividend (fair market value is 100 dollars a share)

C. A one for two reverse split

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Answer #1

A cash dividend of 1 dollar a share

Dividend = 2000000 * 1 = 2,000,000

Cash = 28,000,000 – 2, 000,000 = 26,000,000

Common stock = 100,000,000

Additional paid in Capital = 10,000,000

Retained Earnings = 62,000,000 – 2, 000,000 = 60,000,000

B A 5 percent stock dividend (fair market value is 100 dollars a share)

Dividend = 5 % *(2000000* 100) = 10,000,000

Cash = 28,000,000 – 10, 000,000 = 18,000,000

Common stock = 100,000,000

Additional paid in Capital = 10,000,000

Retained Earnings = 62,000,000 – 10, 000,000 = 52,000,000

A one for two reverse split

Number of shares = ½ * 2,000,000 = 1,000,000

Cash = 28,000,000

Common stock =(100 par, 1,000,000)= 100,000,000

Additional paid in Capital = 10,000,000

Retained Earnings = 62,000,000

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