Question

Artists Unlimited Company has provided the stockholders' equity section of the balance sheet as of December 31. The Controller has asked you to calculate different distribution options to stockholders for management to consider. Use the information included in the Excel Simulation and the Excel functions described below to complete the task. • Cell Reference: Allows you to refer to data from another cell in the worksheet. From the Excel Simulation below, if in a blank cell, =B9" was entered the formula would output the result from cell B9, or $5,000 in this example. • Basic Math functions: Allows you to use the basic math symbols to perform mathematical functions. You can use the following keys: - (plus sign to add). - (minus sign to subtract).* (asterisk sign to multiply), and / (forward slash to divide). From the Excel Simulation below, if in a blank cell "=811-B12" was entered the formula would add the values from those cells and output the result, or $1.730,000 in this example. If using the other math symbols the result would output an appropriate answer for its function. ? E - X Cash dividends, stock dividends, and stock splits - Excel PAGE LAYOUT FORMULAS DATA REVIEW VIEW FILE HOME INSERT Sign in X Calibri - 11 -A A Paste BIU Alignment Number Cells Conditional Format as Formatting Table Styles - Styles Clipboard Font B13 V ! f 1730000 A 11 13 с D E 4 Stock for 1 Stock Cash 5 Stockholders' Equity At Dec 31 Dividend Split Dividend 6 Contributed Capital: 7 Number of common shares outstanding 5,000 10,000 & Par value per common share $ 1.00 $ 1.00 9 Common Stock, at par $ 5,000 $ 10,000 10 Additional Paid in Capital 745,000 745,000 Total Contributed Capital 750,000 755,000 12 Retained Earnings 980,000 Total Stockholders' Equity $ 1,730,000 14 15 16 Required: 17 The company is considering 3 alternative distributions to stockholders. Consider each alternative independently of the others. 18 Complete the table above and show the resulting balances on the stockholders' equity section as a result of these distributions. 19 Use only cell references in formulas. Use cells C3, D3, and E3 as appropriate. Do not reference cells from one alternative in another alternative. 21 1) Issue a 100% stock dividend. 20 22 OR 23 2) Execute a 2-for-1 stock split. Sheet1

Answer 1

4 4 А B с D E 1 The company is considering 3 alternative distributors to stockholder's. Consider each alternative 2 independently of the others? 3 Answer: Stock 2 for 1 Stock $5,000 Cash 5 Stockholders' Equity At Dec 31 Dividend Split Dividend 6 Contributed Capital: 7 Number of common shares outstanding 5,000.00 10,000.00 10,000.00 5,000.00 8 Par value per common share $ 1.00 $ 1.00 $ 0.50 $ 1.00 9 Common stock, at par $ 5,000.00 $ 10,000.00 $ 5,000.00 $ 5,000.00 10 Additional Paid in Capital $ 745,000.00 $ 745,000.00 $ 745,000.00 $ 745,000.00 11 Total Contributed Capital $ 750,000.00 $ 755,000.00 $ 750,000.00 $ 750,000.00 12 Retained Earnings $ 980,000.00 $ 975,000.00 $ 980,000.00 $ 975,000.00 13 Total Stockholders' Equity $1,730,000.00 $1,730,000.00 $ 1,730,000.00 $1,725,000.00 14 15 Explanation: 16 1. In case of stock dividend dividend is declared using stock that's why the stock will increased and retained 17 earnings for the same portion will be decreased. 18 2. In case of 2 for 1 stock split there will be no dividend either in cash or stock and hence there will be no 19 increase in the stockholders' equity. However, the existing stock of $1 will be split into 2 eventually making 20 the 5,000 shares to 10,000 shares with no increase in stockholders' equity. 21 3. Assuming $5,000 cash dividend there will be no increase in contributed capital as cash is distributed to 22 existing shareholders'. Hence retained earnings will be decreased by the amount of $5,000 the dividend 23 amount. Therefore retained earnings reduced by $5,000.

st Stock Dividend 2 for 1 Stock $5,000 Cash Split Dividend At Dec 31 4 5 Stockholders' Equity 6 Contributed Capital: 7 Number of common shares outstanding 8 Par value per common share 9 Common stock, at par 10 Additional Paid in Capital 11 Total Contributed Capital 12 Retained Earnings 13 Total Stockholders' Equity 5000 =B7+B7*100% =B7*2 =B7 1 =B8 =B8/2 =B8 =B7*B8 -C7*C8 -D7*D8 -E7*E8 745000 =B10 =B10 =B10 -SUM(B9:310) -SUM(C9:010) -SUM(D9:010) | SUM(E9:E10) 980000 =B12-5000 =B12 =B12-5000 | = SUM(B11:B12) = SUM(C11:C12) =SUM(D11:012) -SUM(E11:E12)

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