Question

Q. 02: Johore Trading Company has 2.4 million shares of common stock outstanding, and the present market price per share is $36. Its equity capitalization is as follows: Common Stock ($2 par value) Additional Paid-in-Capital Retained Earnings Total Shareholders' Equity S 4,800,000 5,900,000 87,300,000 $ 98,000,000 A. If the company were to declare a 12 percent stock dividend, what would happen to these accounts? A 25 percent stock dividend? A 5 percent stock dividend? B. If, instead, the company declared a 3-for-2 stock split, what would happen to the accounts? A 2-for-1 stock split? A 3-for-I split? C. What would happen if there were a reverse stock split of 1 for 4? 1 for 6? Solution:

Answer 1

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07:10 W © vt ca 1x 2 ENG , 24-03-2020 E ... X W620 : X T fi U S V W Z AA AB AC AD AE 618 619 620 621 622 623 624 625 A-1 626 12% STOCK DIVIDEND EXISTING NO OF SHARES = NO OF ADDITIONAL SHARES TO BE ISSUED 627 2400000 288000 [2400000 X 12%] 628 629 TOTAL NO OF SHARES AFTER STOCK DIVIDEND = 2688000 630 631 632 PAR VALUE = 2 CURRENT PRICE = 36 SO ADDITIONAL PAID IN CAPITAL = 288000 X (36-2) = RETAINED EARNINGS WILL REDUCE BY 288000 X 36 = 9792000 10368000 633 634 635 636 637 ACCOUNTS AFTER STOCK DIVIDEND COMMON STOCK ($ 2 PAR VALUE) = ADDITIONAL PAID IN CAPITAL RETAINED EARNINGS = 638 5376000 15692000 76932000 98000000 639 640 641 ... STOCK DIV NAV HEDGE FUND ME EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS price quote LEVER, ... + 1

07:10 W © vt ca 1x 2 ENG , 24-03-2020 E ... X W662 - : X T Fax U NO OF ADDITIONAL SHARES TO BE ISSUED V W S х Z AA AB AC AD AE 639 98000000 640 A-2 25% STOCK DIVIDEND EXISTING NO OF SHARES = NO OF ADDITIONAL SHARES TO BE ISSUED 2400000 600000 [2400000 X 25%] 641 642 643 644 645 646 647 648 649 650 TOTAL NO OF SHARES AFTER STOCK DIVIDEND = 3000000 PAR VALUE = 2 CURRENT PRICE = 36 SO ADDITIONAL PAID IN CAPITAL = 600000 X (36-2) = RETAINED EARNINGS WILL REDUCE BY 600000 X 36 = 20400000 21600000 651 652 ACCOUNTS AFTER STOCK DIVIDEND COMMON STOCK ($ 2 PAR VALUE) = ADDITIONAL PAID IN CAPITAL RETAINED EARNINGS = 653 654 655 656 657 658 6000000 26300000 65700000 98000000 659 A-3 660 661 662 5% STOCK DIVIDEND EXISTING NO OF SHARES = NO OF ADDITIONAL SHARES TO BE ISSUED EV PE EPS DIV ABNORMAL deberk MARGIN MONEY 2400000 120000 [2400000 X 5%] marginal tax PB ROPI APV ROSS ... STOCK DIV NAV HEDGE FUND ME price quote LEVER. ... :

© v ta x 2 ENG - 07:10 = W 24-03-2020 E ... X W680 - : X T Fx U ACCOUNTS AFTER STOCK SPLIT V W S Z AA AB AC AD AE A 657 658 659 A-3 660 661 5% STOCK DIVIDEND EXISTING NO OF SHARES = NO OF ADDITIONAL SHARES TO BE ISSUED 2400000 120000 [2400000 X 5%] 662 663 664 TOTAL NO OF SHARES AFTER STOCK DIVIDEND = 2520000 PAR VALUE = 2 CURRENT PRICE = 36 SO ADDITIONAL PAID IN CAPITAL = 120000 X (36-2) = RETAINED EARNINGS WILL REDUCE BY 120000 X 36 = 4080000 4320000 665 666 667 668 669 670 671 672 ACCOUNTS AFTER STOCK DIVIDEND COMMON STOCK ($ 2 PAR VALUE) = ADDITIONAL PAID IN CAPITAL RETAINED EARNINGS = 673 5040000 9980000 82980000 98000000 B-1 674 675 676 677 678 679 680 3 FOR 2 SPLIT NO OF SHARES AFTER SPLIT = PAR VALUE = 2400000 X 3/2 = 2 X 2/3 = 3600000 1.33 con ACCOUNTS AFTER STOCK SPLIT EV PE EPS DIV ABNORMAL deberk QAN ANNANLATAAnIan ܘܘܘܘܘܘ ... STOCK DIV NAV HEDGE FUND ME MARGIN MONEY marginal tax PB ROPI APV ROSS price quote LEVER, ... + 1

07:10 W © vt ca 1x 2 ENG , 24-03-2020 E ... X U675 X ✓ fx I s T U V W V Z AA AB AC AD AE 6757 676 B-1 677 3 FOR 2 SPLIT NO OF SHARES AFTER SPLIT = PAR VALUE = 3600000 2400000 X 3/2 = 2 X 2/3 = 678 1.33 679 680 681 ACCOUNTS AFTER STOCK SPLIT COMMON STOCK ($ 1.33 PAR VALUE) = ADDITIONAL PAID IN CAPITAL RETAINED EARNINGS = 4800000 5900000 682 683 87300000 98000000 684 685 B-2 2 FOR 1 SPLIT NO OF SHARES AFTER SPLIT = PAR VALUE = 2400000 X 2/1 = 2 X 1/2 = 4800000 1.00 686 687 688 689 690 691 ACCOUNTS AFTER STOCK SPLIT COMMON STOCK ($ 1 PAR VALUE) = ADDITIONAL PAID IN CAPITAL RETAINED EARNINGS = 692 4800000 5900000 87300000 98000000 693 694 695 696 697 698 B-3 3 FOR 1 SPLIT NO OF SHARES AFTER SPLIT = 2400000 X 3/1 = NAV HEDGE FUND MF | EV PE EPS DIV ABNORMAL deberk | MARGIN MONEY marginal tax con DARILAULLE VA 7200000 PB ROPI APV ROSS ... STOCK DIV price quote LEVER. ... :

©v tra x 3 ENG - 07:11 W 24-03-202027 ... X 0718 : X T fix U S V W Z AA AB AC AD AE B-3 3 FOR 1 SPLIT NO OF SHARES AFTER SPLIT = PAR VALUE = 2400000 X 3/1 = 2 X 1/3 = 7200000 0.67 695 696 697 698 699 700 701 702 703 704 705 706 707 708 709 ACCOUNTS AFTER STOCK SPLIT COMMON STOCK ($ 0.67 PAR VALUE) = ADDITIONAL PAID IN CAPITAL RETAINED EARNINGS = 4800000 5900000 87300000 98000000 C-1 1 FOR 4 REVERSE STOCK SPLIT NO OF SHARES AFTER REVERSE SPLIT = PAR VALUE AFTER EVERSE SPLIT = 600000 [2400000/4] 8 [2 X 4] 710 ACCOUNTS AFTER STOCK SPLIT COMMON STOCK ($ 8 PAR VALUE) = ADDITIONAL PAID IN CAPITAL RETAINED EARNINGS = 711 712 713 714 715 716 717 7180 4800000 5900000 87300000 98000000 1C-2 1 FOR 6 REVERSE STOCK SPLIT ܠܘܐܒ LAAFULADA APTEN FLIP CAOUT anna Lanana lel ... STOCK DIV NAV HEDGE FUND ME EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS price quote LEVER, ... + 1

©v tra x 3 ENG - 07:11 W 24-03-202027 ... X U739 X fc S T U V W X Y Z AA AB AC AD AED 716 C-2 717 718 719 720 721 722 1 FOR 6 REVERSE STOCK SPLIT NO OF SHARES AFTER REVERSE SPLIT = PAR VALUE AFTER EVERSE SPLIT = 400000 [2400000/6] 12 [2 X 6] 723 724 ACCOUNTS AFTER STOCK SPLIT COMMON STOCK ($ 12 PAR VALUE) = ADDITIONAL PAID IN CAPITAL RETAINED EARNINGS = 4800000 5900000 87300000 98000000 725 726 727 728 729 730 731 732 733 734 735 736 737 738 739 ܠܩܬܒ ... STOCK DIV NAV HEDGE FUND ME EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS price quote LEVER, ... + 1