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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 13, Problem 12E
Textbook Problem
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Effect of cash dividend and stock split

Indicate whether the following actions would (+) increase, (–) decrease, or (0) not affect Indigo Inc.’s total assets, liabilities, and stockholders’ equity:

Chapter 13, Problem 12E, Effect of cash dividend and stock split Indicate whether the following actions would (+) increase,

To determine

Indicate whether each of the events related to cash dividend and stock split would increase (+), decrease (–), or not affect (0) the total assets, liabilities, and stockholders’ equity of Incorporation I.

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.

Stock Dividends:  It refers to the payment of the dividend to its shareholders by the corporation in the form of shares rather than cash is referred as stock dividend.

Indicate whether each of the actions related to cash dividend and stock split would (+), (–), or (0) the total assets, liabilities, and stockholders’ equity of Incorporation I.

ActionsAssetsLiabilitiesStockholders’ equity
(1) Authorizing and issuing stock certificates in a stock split000
(2) Declaring a stock dividend000
(3) Issuing stock certificates for the stock dividend declared in (2)000
(4) Declaring a cash dividend0+
(5) Paying the cash dividend declared in (4)0

Description:

(1)

Authorizing and issuing stock certificates in a stock split does not affect assets, liabilities, and stockholders’ equity of Incorporation I, since stock split does not change the total value of the common stock. Stock split affects only the number of shares outstanding the price per share.

(2)

Declaration of stock dividends does not affect assets, liabilities, and stockholders’ equity of Incorporation I. Declaration of stock dividends would increase the stock dividends and stock dividends distributable. An increase in stock dividend decreases the stockholders’ equity, since it decreases the retained earnings, and an increase in stock dividends distributable increases the stockholders’ equity...

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Chapter 13 Solutions

Financial Accounting
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