Question

11)Bill issued 200,000 shares of $2 par value stock. The book value of Bill’s common stockholders' equity is equal to $20 million. On August 1, he implements a two-for-one stock split. After the stock split, the total number of shares outstanding is 400000 shares, the total par value is $1 and the total book value is $20 million.

12) Assuming the market price per share of Bill’s stock was $150/share before the split, what should be the market price per share after the split?

13)On July 15, 2015, Tina declared and issued a 15 percent stock dividend. Prior to this dividend, Tina had 50,000 shares of $10 par value common stock issued and outstanding. The market value of Tina’s common stock on July 15, 2015, was $23 per share. As a result of this stock dividend, by what amount would Tina’s total stockholders' equity increase or decrease?

14) All else equal, what would we expect the approximate market value per share of Tina’s stock to be after the dividend?

Please show calculations

Answer 1

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Answer 11)

Stock split only changes the number of shares and the par value but no balance of common stock or any account of stockholders' equity is changed. Here after stock split , new no. of shares = 200,000 shares * 2 = 400000 shares and Par value = $2 / 2 = $ 1 So the value of common stock = 400000 * 1 = $ 400000 Previously also, it was 200000 * 2 = $ 400000 Therefore, the book value of Danio's common stockholders' equity will remain same i.e $ 20 million it will not change ) Note :- Book value consists of other balances also like paid in capital in excess, retained earnings etc.