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a)
To calculate: The new shares.
Introduction:
A unit of ownership in various investments which fetches an equal distribution is termed as shares.
a)
![Check Mark](/static/check-mark.png)
Answer to Problem 4QP
New number of shares is 4,500.
Explanation of Solution
Given information:
T Company sells the shares at the rate of $42 per share and declared 10% stock dividend. The owner’s total equity shows common stock ($1 par value) of $45,000, capital surplus of $125,000,
Formulae:
The formula to calculate the new shares:
The formula to calculate the new number of outstanding shares:
Compute the new number of shares of F Company:
The common stock is $45,000 at par value of $1.
Therefore, the share value is,
Hence, the existing shares are 45,000.
Note: The Company declares 10% of stock dividend.
Hence, the new number of outstanding shares is 49,500.
Compute the number of new shares:
Hence, the new numbers of shares are 4,500.
To discuss: The changes in equity account.
Introduction:
A unit of ownership in various investments which fetches an equal distribution is termed as shares.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Given information:
T Company sells the shares at the rate of $42 per share and declared 10% stock dividend. The owner’s total equity shows common stock ($1 par value) of $45,000, capital surplus of $125,000, retained earnings of $580,000 and total owners equity of $750,000. (Refer above part) New number of outstanding stock is 49,500. New number of shares is 4,500.
Compute the change in values of total owner’s equity:
Compute the change in value of common stock:
Hence, the new common stock is $49,500.
Compute the change in value of capital surplus:
Note: The new share par value is $1, so the capital surplus is
Hence, the new capital surplus is $184,500.
Compute the total owner’s equity:
Particulars | Amount |
($) | |
Common stock ($1 par value) | $49,500 |
Capital surplus | $309,500 |
($184,500+$125,000) | |
Retained earnings (b/f) | $391,000 |
Total Owner's equity | $750,000 |
Note: Retained earnings will remain as balancing figure in the owner’s equity.
Hence, the total owner’s equity is $750,000.
b)
To calculate: Total owner’s equity, when the company declares 25% stock dividend.
Introduction:
A unit of ownership in various investments which fetches an equal distribution is termed as shares.
b)
![Check Mark](/static/check-mark.png)
Explanation of Solution
Given information:
T Company sells the shares at the rate of $42 per share and declared 10% stock dividend. The owner’s total equity shows common stock ($1 par value) of $45,000, capital surplus of $125,000, retained earnings of $580,000 and total owners equity of $750,000. (Refer above part) New number of outstanding stock is 49,500. New number of shares is 4,500.
Formulae:
The formula to calculate the new number of shares:
The formula to calculate the new number of outstanding shares:
Compute the new number of shares of T Incorporation, when it declares 25% stock dividend:
Hence, the new number of outstanding shares is 56,250.
New shares:
Hence, the new number of share is 11,250.
Compute the change in values of total owner’s equity:
Compute the change in value of common stock:
Hence, the new common stock is $56,250.
Note: The new share par value is $1, so the capital surplus is
Hence, the new capital surplus is $461,250.
Compute the total owner’s equity:
Particulars | Amount |
($) | |
Common stock ( $1par value) | $56,250 |
Capital surplus | $586,250 |
($461,250+$125,000) | |
Retained earnings | $107,500 |
(b/f) | |
Total Owner's equity | $750,000 |
Note: Retained earnings will remain as balancing figure in the owner’s equity.
Hence, the total owner’s equity is $750,000.
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Chapter 14 Solutions
ESSENTIAL OF CORP FINANCE W/CONNECT
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
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