Knapp's Marine Supply reported the following information at December 31, 2018: Common stock, $1 par, 500,000...
Knapp's Marine Supply reported the following information at December 31, 2018: Common stock, $1 par, 500,000 shares authorized $ 300,000 Additional paid-in capital - Common 160,000 Retained earnings Less: Treasury Stock (cost $10/share) 90,000 (20,000) Total stockholders' equity $530,000 Answer the following questions for Knapp's Marine Supply.
What is the Contributed Capital? $ _________________________
Would the total stockholders’ equity increase, decrease, or remain the same, if the company declared a 2-for-1 stock split on December 31, 2018? Explain.
Would the market price per share of stock increase, decrease, or remain the same, if the company declared a 2-for-1 stock split on December 31, 2018? Explain.
Calculate the number of shares: i. Issued ____________ shares ii. Treasury stock ____________ shares iii. Outstanding ____________ shares
Homework Answers
Answers
- Contributed capital = Common Stock + Additional paid in capital = 300000 + 160000 = $ 460,000
- Total Stockholder’s Equity would REMAIN the SAME in case of 2
for 1 stock split.
This is because, even though stock split increases the number of shares, the par value gets decreased, making the net effect of the split to be $ 0. - Market price per share of stock DECREASES if the 2 for 1 stock
split is done.
For example, currently market price per share $ 10, while shares outstanding are 10,000. If 2 for 1 split is done, no. of shares would be 20000 [10000 x 2/1]. Hence, Market price per share would be $ 5 [$10 x ½] - Number of shares issued =$ 300000 / $ 1 par = 300,000 shares
- Treasury Shares = $ 20,000 / $ 10 cost per share = 2,000 shares
- Outstanding shares = 300000 issued – 2000 treasury shares = 298,000 shares
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Knapp's Marine Supply reported the following information at December 31, 2018: Common stock, $1 par, 500,000...
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Common stock—$20 par value, 100,000 shares authorized,
50,000 shares issued and outstanding
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1,000,000
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2
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