Question

Stock dividend versus stock split Firm The board of Wicker Home Health Care, Inc. is exploring ways to expand the number of shares outstandng in an effort to reduce the market price per share to a level that the frm considers more appealing to investors. The options under consideration wo a 20stock dividend and, alternatively, a 5-kor 4 stock split At the present time, the firm's equally account and other per share information are given as follows: a. Show the effect on the equity accounts and po share din of a 20% stock didend b. Show the effect on the equity accounts and pershare data of a 5 for 4 stock solt Which option will accomplish Wicker's goal of reducing the current stock price while maintaining a stable level of retained earnings? What legal constraints miont encourage the firm to choose a stock split over a stock didend? Data Table 200.000 P Preferred Stock Common Stock (200 000 shares at Spor) in capital in esso per Retained Earnings Total Stockholders' equity 700 000 a. Show the effect on the equity accounts and pershare data of a 20% stock dividend The number of shares of common stock after the dividend is shares Round to the nearest whole number The balance in the common stock account after the dividend is (Round to the nearest dolar The balance in the paid in capital in excess of par account after the dividend is (Round to the nearest dotar The balance in the retained earnings account after the dividend is $ (Round to the nearest dolar) The price per share of common stock after the dividend is found to the nearest cent) The earings per share (EPS) after the dividend is S . (Round to the nearest cent) b. Show the effect on the equity accounts and pershare data of a 5-for-4 stock spit The number of shares of common stock after the spit is shares (Round to the nearest whole number) The balance in the common stock account after the spits Round to the nearest dolar) The balance in the poidan capital in excess of per account at the siti (Round to the nearest dotat 1.400 000 $2.360.000 Price per share Earnings per shero Dividend per share $400 $102 Done Click to select your answers)

Answer 1

You have asked a question with so many sub parts. I have addressed the ll the sub parts of the first part (a). Please post the balance questions separately.

a. Show the effect on the equity accounts and per-share data of a 20% stock dividend.

The number of shares of common stock after the dividend is shares. (Round to the nearest whole number.) = 200,000 x (1 + 20%) = 240,000

The balance in the common stock account after the dividend is S (Round to the nearest dollar.)

= 240,000 x $ 1 = 240,000

The balance in the paid-in capital in excess of par account after the dividend is $ (Round to the nearest dollar.)

= 240,000 x (Current price - par value) = 240,000 x (29 - 1) = 6,720,000

The balance in the retained earnings account after the dividend is $ (Round to the nearest dollar.)

= Current balance - new number of shares x current share price = 1,460,000 - (240,000 - 200,000) x 29 =  300,000

The price per share of common stock after the dividend is S (Round to the nearest cent.):

Total wealth remain the same. Hence, The price per share of common stock after the dividend is = Share price before dividend / (1 + % dividend) = 29 / (1 + 20%) = $  24.17

The earnings per share (EPS) after the dividend is (Round to the nearest cent.) = 4 / (1 + 20%) = 3.33