Question 1

Josh's,Inc.has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $32 a share.The balance sheet shows $82,000 in the capital in excess of par account,$7,000 in the common stock account,and $64,800 in the retained earnings account.The firm just announced a 10 percent stock dividend.What is the value of the capital in excess of par account after the dividend?

Accepted Answer

Change in capital in excess of par = (7,000 shares × 0.10) × ($32 - $1) = $21,700New capital in excess of par account balance = $82,000 + $21,700 = $103,700

Question 2

The Tanning Bed has 10,000 shares of stock outstanding with a par value of $1 per share and a market value of $8 per share.The balance sheet shows $10,000 in the common stock account,$60,000 in the capital in excess of par account,and $94,300 in the retained earnings account.The firm just announced a 100 percent stock dividend.What will be the value of the common stock account after the dividend?

Accepted Answer

Common stock = [(10,000 shares × 1.0) × $1] + $10,000 = $20,000

Question 3

South Shore Limited has 21,000 shares of stock outstanding with a par value of $1 per share and a market price of $7.50 a share.The firm just announced a 5-for-2 stock split.What will the par value of the stock be after the split?

Accepted Answer

Par value = $1 × (2/5) = $0.40

Question 4

Randall's,Inc.has 20,000 shares of stock outstanding with a par value of $1.00 per share.The market value is $12 per share.The balance sheet shows $42,000 in the capital in excess of par account,$20,000 in the common stock account,and $50,500 in the retained earnings account.The firm just announced a 5 percent (small)stock dividend.What will the balance in the retained earnings account be after the dividend?

Accepted Answer

Retained earnings = [(20,000 shares × 0.05) × $12 × -1] + $50,500 = $38,500

Question 5

Western Mountain Water has 11,000 shares of stock outstanding with a par value of $1 per share.The current market value of the firm is $135,000.The balance sheet shows a capital in excess of par value account balance of $68,000 and retained earnings of $49,000.The company just announced a 2-for-1 stock split.What will the capital in excess of par value account balance be after the split?

Accepted Answer

The paid in surplus account will remain at $68,000 as a stock split has no effect on this account.

Question 6

Southern Fried Chicken has 8,000 shares of stock outstanding with a par value of $1 per share and a market value of $34 per share.The balance sheet shows $45,000 in the capital in excess of par account,$8,000 in the common stock account,and $152,000 in the retained earnings account.The firm just announced a 5 percent stock dividend.What will total owners' equity be after the dividend?

Accepted Answer

Total equity will not change as this is a small stock dividend.Total equity = $45,000 + $8,000 + $152,000 = $205,000

Question 7

Cooper Brands,Inc.,has 68,000 shares of stock outstanding at a market price of $63 a share.The par value is $1 per share.The company has just announced a 5-for-4 stock split.What will the market price per share be after the split?

Accepted Answer

Market price per share = $63 × 4/5 = $50.40

Question 8

Kurt's Market has 8,000 shares of stock outstanding with a par value of $1 per share and a market value of $13 per share.The balance sheet shows $8,000 in the common stock account,$26,000 in the capital in excess of par account,and $36,800 in the retained earnings account.The firm just announced a 100 percent stock dividend.What will be the balance in the retained earnings account after this dividend?

Accepted Answer

Retained earnings = $36,800 - [(8,000 shares × 1.0) × $1] = $28,800

Question 9

Tucker's National Distributing has a current market value of equity of $10,665.Currently,the firm has excess cash of $640,total assets of $22,400,net income of $3,210,and 500 shares of stock outstanding.Tucker's is going to use all of its excess cash to repurchase shares of stock.What will the stock price per share be after the stock repurchase is completed?

Accepted Answer

Current price per share = $10,665/500 = $21.33Number of shares repurchased = $640/$21.33 = 30New number of shares outstanding = 500 - 30 = 470New equity = $10,665 - $640 = $10,025New price per share = $10,025/470 = $21.33

Question 10

Mario's has 18,000 shares of stock outstanding with a par value of $1 per share and a market price of $4 a share.The balance sheet shows $18,000 in the common stock account,$368,000 in the paid in surplus account,and $64,000 in the retained earnings account.The firm just announced a 5-for-1 stock split.What will the paid in surplus account value be after the split?

Accepted Answer

A stock split does not change the total value of the paid in surplus account.

Question 11

Alfonzo's Italian House has 25,000 shares of stock outstanding with a par value of $1 per share and a market price of $28 a share.The firm just announced a 5-for-3 stock split.What will the market price per share be after the split?

Accepted Answer

Market price per share = $28 × 3/5 = $16.80

Question 12

The equity of Blooming Roses has a total market value of $16,000.Currently,the firm has excess cash of $1,400 and net income of $15,400.There are 750 shares of stock outstanding.What will be the percentage change in the stock price per share if the firm pays out all of its excess cash as a cash dividend?

Accepted Answer

Price per share before cash dividend = $16,000/750 = $21.33Price per share after cash dividend = ($16,000 - $1,400)/750 = $19.47Percentage change in price = ($19.47 - $21.33)/$21.33 = -8.75 percent

Question 13

The Mining Co.has 20,000 shares of stock outstanding.The current market value of the firm is $328,000.The company has retained earnings of $27,000,capital in excess of par value of $160,000,and a common stock account value of $40,000.The company is planning a 2-for-5 reverse stock split.What will the par value per share be after the split?

Accepted Answer

Par value per share = ($40,000/20,000 shares) × 5/2 = $5.00

Question 14

Val's Marina Supply has 3,500 shares of stock outstanding with a par value of $1.00 per share and a market value of $19 per share.The balance sheet shows $3,500 in the common stock account,$24,000 in the capital in excess of par account,and $31,400 in the retained earnings account.The firm just announced a 100 percent stock dividend.What is the value of the capital in excess of par account after the dividend?

Accepted Answer

The capital in excess of par account will remain at $24,000 as it does not change with a large stock dividend.

Question 15

Delaware Trust has 450 shares of common stock outstanding at a market price per share of $27.Currently,the firm has excess cash of $400,total assets of $28,900,and net income of $1,320.The firm has decided to pay out all of its excess cash as a cash dividend.What will the earnings per share be after this dividend is paid?

Accepted Answer

Earnings per share = $1,320/450 = $2.93

Question 16

Verbal Communications,Inc.,has 14,000 shares of stock outstanding with a par value of $1 per share and a market value of $32 per share.The firm just announced a 100 percent stock dividend.What is the market value per share after the dividend?

Accepted Answer

Market value per share = (14,000 × $32)/(14,000 × 2) = $16

Question 17

Prezario's has 25,000 shares of stock outstanding with a par value of $1 per share.The current market value of the firm is $847,000.Currently,the retained earnings account balance is $428,000 and the capital in excess of par value account balance is $187,000.The company just announced a 3-for-1 stock split.What is the common stock account balance after the stock split?

Accepted Answer

Common stock account value before the stock split = 25,000 × $1 = $25,000A stock split does not change the total value of the common stock account.

Question 18

Della's Pool Halls has 12,000 shares of stock outstanding with a par value of $1 per share and a market price of $39 a share.The firm just announced a 4-for-3 stock split.How many shares of stock will be outstanding after the split?

Accepted Answer

Number of shares = 12,000 × 4/3 = 16,000 shares

Question 19

The Peace River Corporation has 62,000 shares of stock outstanding at a market price of $48 a share.The company has just announced a 3-for-2 stock split.How many shares of stock will be outstanding after the split?

Accepted Answer

Number of shares = 62,000 × 3/2 = 93,000 shares

Question 20

The Peanut Shack has 6,5000 shares of stock outstanding with a par value of $1 per share.The current market value of the firm is $145,600.The company just announced a 3-for-2 stock split.What will the market price per share be after the split?

Accepted Answer

Market price per share = ($145,600/6,500) × 2/3 = $14.93

Quiz 17: Dividends and Payout Policy