Question

On June 30, 2017, Sharper Corporation's common stock is priced at $26.00 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, 100,000 shares authorized, 40,000 shares issued and outstanding Paid in capital in excess of par value, common stock Retained earnings Total stockholders' equity $ 400,eee 100,000 500.000 $1,eee eee 1. Assume that the company declares and immediately distributes a 100% 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 2-for-1 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

Solution to part 1:

Stock Dividend	Before Stock Dividend	Impact of Stock Dividend	After Stock Dividend
Common Stock	400,000	400,000	800,000
Paid in capital in excess of par value	100,000		100,000
Total contributed capital	500,000	400,000	900,000
Retained Earnings	500,000	(400,000)	100,000
Total Stockholder's equity	1,000,000	0	1,000,000
Number of common shares outstanding	40,000	40,000	80,000

Calculation of stock dividend = 400,000 x 100% = $ 400,000

So,$ 400,000 is capitalized from retained earnings.

Solution to part 2:

Stock Split	Before Stock Split	Impact of Stock Split	After Stock Split
Common Stock	400,000		400,000
Paid in capital in excess of par value	100,000		100,000
Total contributed capital	500,000		500,000
Retained Earnings	500,000		500,000
Total Stockholder's equity	1,000,000		1,000,000
Number of common shares outstanding	40,000	40,000	80,000

Stock split just splits the outstanding number of shares and has no effect on total amount of common stock issued.

Number of shares after stock split = 40,000 x (2/1) = 80,000 shares

Impact of stock split = 80,000 - 40,000 = 40,000 shares to be issued .