FINANCIAL ACCOUNTING (LL)
FINANCIAL ACCOUNTING (LL)
10th Edition
ISBN: 9781266449512
Author: Libby
Publisher: MCG
Question
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Chapter 11, Problem 11P

Case: 1

To determine

Compute the table below if the board of directors declared a cash dividend of $0.02 per share

Case: 1

Expert Solution
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Explanation of Solution

Dividends:

Dividends are the rewards to the stockholders for investing their money in the company. Payment of dividend depends upon the decision of the management.

Following is the table that shows the Comparative results (after cash dividends).


Particulars
Before any DividendAfter Cash
Dividend
Common stock account$60,000$60,000
Par per share$0.10$0.10
Shares outstanding

$600,000

(1)

$600,000
Additional paid- in capital$  1,900,000$  1,900,000
Retained earnings$  800,000$  788,000
(2)
Total stockholder’s equity$2,760,000$2,748,000
Cash flows from financing activities$19,000

$7,000

(3)

Table (1)

Working notes:

Calculate shares outstanding before any dividend:

Sharesoutstandingbeforeanydividend=CommonstockaccountbeforeanydividendParvalueofpersharebeforeanydividend =$60,000$0.10=$600,000 (1)

Calculate retained earnings after cash dividend:

Retainedearningsaftercashdividend)[(RetainedearningsbeforeanydividendValueofcashdividend)×Sharesoutstandingbeforeanydividend]=$800,000$0.02×$600,000=$788,000 (2)

Calculate cash flows from financing activities after cash dividend:

Cashflowsfromfinancingactivitiesaftercashdividend)[(CashflowfromfinancingactivitiesbeforeanydividendValueofcashdividend)×Sharesoutstandingbeforeanydividend]=$19,000$0.02×$600,000=$7,000 (3)

Case: 2

To determine

Complete the table below if the board of directors declared and issued a 100 percent stock dividend when the stock was selling at $10 per share.

Case: 2

Expert Solution
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Explanation of Solution

Stock dividend:

Stock dividend is the payment made in the form of additional shares to the existing shareholders of the company instead of making cash payment with respect to the ownership of shares exercised by the shareholders.

Following is the table that shows the Comparative results (after stock dividend).


Particulars
Before any DividendAfter Cash
Dividend
After Stock
Dividend
Common stock account$60,000$60,000$120,000
(4)
Par per share$0.10

$0.10$0.10
Shares outstanding

600,000

(1)

600,0001,200,000
(5)
Additional paid-in capital$  1,900,000

$  1,900,000$1,900,000
Retained earnings$  800,000

$  788,000
(2)
$ 740,000
(6)
Total stockholders’ equity$2,760,000$2,748,000$2,760,000
Cash flows from financing activities$19,000$7,000
(3)
$19,000

Table (2)

Working notes:

Calculate the value of common stock account after stock dividend:

Commonstockaccountafterstockdividend)=(Parvalueofpershare×Sharesoutstandingafterstockdividend)=$0.10×$1,200,000 (5)=$120,000 (4)

Calculate the value of shares outstanding after stock dividend:

Sharesoutstandingafterstockdividend=(Sharesoutstandingbeforeanydividend×2-for-1Stocksplit)=$600,000×2=$1,200,000 (5)

Calculate the value of retained earnings after stock dividend:

Retainedearningsafterstockdividend)=[(RetainedearningsbeforeanydividendsParvalueofpershare)×Sharesoutstandingbeforeanydividend]=$800,000$0.10×$600,000=$740,000 (6)

Case: 3

To determine

Complete the table below if the board of directors announced a 2-for-1 stock split and the market price prior to the split was $10 per share.

Case: 3

Expert Solution
Check Mark

Explanation of Solution

Stock Splits:

It is a method of increasing the total number of outstanding shares thereby, reducing the market price of each share, however, keeping the corporation’s total market value constant.

Following is the table that shows the Comparative results (after stock split).


Particulars
Before any DividendAfter Cash
Dividend
After Stock
Dividend
After Stock
Split
Common stock account$60,000$60,000$120,000
(4)
$60,000
Par per share$0.10

$0.10$0.10$0.05
(7)
Shares outstanding

600,000

(1)

600,000

1,200,000

(5)

1,200,000
(5)
Additional paid-in capital$  1,900,000

$  1,900,000$1,900,000$1,900,000
Retained earnings$  800,000

$  788,000
(2)
$ 740,000
(6)
$ 800,000
Total stockholders’ equity$2,760,000$2,748,000$2,760,000$2,760,000
Cash flows from financing activities$19,000$7,000
(3)
$19,000$19,000

Table (3)

Working note:

Calculate the par value of per share after stock split:

Parvaluepershareafterstocksplit=Parvaluepershare2-for-1stocksplit=$0.102=$0.05 (7)

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Chapter 11 Solutions

FINANCIAL ACCOUNTING (LL)

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