The company with the common equity accounts shown here has declared a 5-for-one stock split when...
Question:
The company with the common equity accounts shown here has declared a 5-for-one stock split when the market value of its stock is $33 per share. The firm's 75-cent per share cash dividend on the new (postsplit) shares represents an increase of 20 percent over last year's dividend on the presplit stock.
Common stock ($1 par value) $ 475,000
Capital surplus 864,000
Retained earnings 3,900,800
Total owner's equity $ 5,239,800
a) What is the new par value per share?
b) What was last year's dividend per share?
Stock dividends and stock splits:
Since stock dividend doesn't pay any cash, it is not true dividend. The purpose of stock dividends is to increase the number of shares that each shareholder holds. While the par value per share decreases due to stock split.
Answer and Explanation: 1
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Stock split increases the number of outstanding shares while decreases the par value per share. The par value will change according to the ratio...
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