the company stock is selling for 20 per share the company had total earnings of 40000
Problem 18-21 Stock dividend and its effect LO4
Ace Products sells marked playing cards to blackjack dealers. It has not paid a dividend in many years, but is currently contemplating some kind of dividend.
The capital accounts for the firm are as follows:
Common stock
(2,000,000 shares at $5 par)
$
10,000,000
Capital in excess of par*
6,000,000
Retained earnings
24,000,000
Net worth
$
40,000,000
*The increase in capital in excess of par as a result of a stock dividend is equal to the new shares created times (Market price - Par Value).
The company's stock is selling for $20 per share. The company had total earnings of $4,000,000 during the year. With 2,000,000 shares outstanding, earnings per share were $2.00. The firm has a P/E ratio of 10.
Requirement 1:
What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. (Omit the "$" sign in your response.)
Common stock
(2,200,000 shares at $5 par)
$
Capital in excess of par
Retained earnings
Net worth
$