Question

The 2017 annual report of Software City, Inc., included the following comparative summary of carings per share over the last three years. Earnings per share 2017 $3.15 2016 $240 2015 $1.64 In 2018, Software City, Inc., declared and distributed a 2-for-1 stock split. Following this distribution of stock, the company reported earnings per share of 1.88 for 2018 page 54 a. Prepare a three-year schedule similar to the one given, but compare earnings per share during the years 2018, 2017, and 2016. (Hint: All per share amounts in your schedule should be based on the number of shares outstanding after the stock dividend) b. In preparing your schedule, which figure (or figures) did you have to restate? Why? Explain the logic behind your computation LO12-4 EXERCISE 12.7 Cash Dividends, Stock Dividends, and Stock Splits HiTech Manufacturing Company has 1,000,000 shares of $par value capital stock outstanding on January 1. The following equity transactions occurred during the current year. Apr. 30 Distributed additional shares of capital stock in a 2-for-stock split. Market price of stock was 535 per share. June 1 Declared a case dividend of $0.60 per share. July 1 Paid the 50.60ash dividend to stockholders. Aug. 1 Declared a 5 percent stock dividend. Market price of stock was $19 per share. Sept. 10 Issued shares resulting from the 5 percent stock dividend declared on August 1 a. Prepare journal entries to record these transactions b. Compute the number of shares of capital stock outstanding at year-end. c. What is the par value per share of HiTech Manufacturing stock at the end of the year? d. Determine the effect of each of the following on total stockholders' equity stock split, declaration and payment of a cash dividend, declaration and distribution of a stock dividend. (Your answers should be increase, decrease, or no effect.) LO12-4 EXERCISE 12.8 Effect of Stock Dividends on Stock Price Inland Co., has a total of 40,000 shares of common stock outstanding and no preferred stock. Total stockholders' equity at the end of the current year amounts to $2.5 million, and the market value of the stock is $33 per share. At year-end, the company declares a 10 percent stock dividend-one share for each 10 shares held. If all parties concerned clearly recognize thentisch stek diwidend wheshme h mark e t.comment on the wewident

Answer 1

Hi Tech Manufacturing Journal entries Debit ($) Credit ($) Date Description 30-Apr No Journal entry (Stock has been spilt in the ratio of 2:1) 1,200,000 1-Jun Dividend (Note 1) Dividend payable 1,200,000 1-Jul Dividend payable 1,200,000 Cash 1,200,000 1,900,000 1-Aug Stock Dividend (Note 2) Stock Dividend distributable (100,000 x 0.50) Additional paid in capital - Common Stock (100,000 x 18.50) 50,000 1,850,000 50,000 10-SepStock Dividend distributable (100,000 x 0.50) Common Stock 50,000 * No journal entry required for stock split Note 1 Total outstanding common Stock after Split Dividend per Share Total Dividend payable 2,000,000 $ 0.60 $ 1,200,000

Note 2 Total outstanding common Stock after Split Stock Dividend Total Stock Dividend (No. of shares) Market price of Stock Total Stock Dividend (100,000 x 19) 2,000,000 5% 100,000 19 $ 1,900,000

b) No. of Shares outstanding at year end Opening balance Add: Stock Split 2:1 Add: Stock Dividend Shares outstanding at year end 1,000,000 1,000,000 100,000 2,100,000 Par value of Shares at year end Par value of shares will also be split in the ratio of Stock split Therefore, Par value is $ 0.50 ($ 1/2)

d) Effect of transaction on Stakeholder's equity Event Effect Stock Split No effect Declaration and payment of cash dividend Decrease Explanation Stock split will not effect the stakeholder's equity, only outstanding shares will increase according to split ratio Payment of cash dividend will reduce the reatained earnings, therefore Stakeholder's equity will also be reduced in the same proportion Stock dividend will result in increase in paid up capital and decrease in retained earnings in same proportion, therefore net effect will be 0 for this transaction. Declaration and distribution of Stock dividend No effect