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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 (3,000,000 shares at $5 par) Capital in excess of par* Retained earnings Net worth *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 $10 per share. The company had total earnings of $3,000,000 during the year. With 3,000,000 shares outstanding, earnings per share were $1. The firm has a P/E ratio of 10. a. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. Note: Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000). Common stock Capital in excess of par Retained earnings Net worth EPS Stock price $ Number of shares $ 16,500,000 b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.) Note: Do not round intermediate calculations and round your answers to 2 decimal places. Before stock dividend After stock dividend $ 15,000,000 6,000,000 24,000,000 $ 45,000,000 16,500,000 c. How many shares would an investor end up with if he or she originally had 140 shares? Note: Do not round intermediate calculations and round your answer to the nearest whole share. d. What is the investor's total investment worth before and after the stock dividend if the P/E ratio remains constant? Note: Do not round intermediate calculations and round your answers to the nearest whole dollar. Total Investment $ $ 6,000 6,000

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 (3,000,000 shares at $5 par) Capital in excess of par* Retained earnings Net worth *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 $10 per share. The company had total earnings of $3,000,000 during the year. With 3,000,000 shares outstanding, earnings per share were $1. The firm has a P/E ratio of 10. a. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. Note: Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000). Common stock Capital in excess of par Retained earnings Net worth EPS Stock price $ Number of shares $ 16,500,000 b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.) Note: Do not round intermediate calculations and round your answers to 2 decimal places. Before stock dividend After stock dividend $ 15,000,000 6,000,000 24,000,000 $ 45,000,000 16,500,000 c. How many shares would an investor end up with if he or she originally had 140 shares? Note: Do not round intermediate calculations and round your answer to the nearest whole share. d. What is the investor's total investment worth before and after the stock dividend if the P/E ratio remains constant? Note: Do not round intermediate calculations and round your answers to the nearest whole dollar. Total Investment $ $ 6,000 6,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 (3,000,000 shares at $5 par) Capital in excess of par* Retained earnings Net worth *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 $10 per share. The company had total earnings of $3,000,000 during the year. With 3,000,000 shares outstanding, earnings per share were $1. The firm has a P/E ratio of 10. a. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. Note: Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000). Common stock Capital in excess of par Retained earnings Net worth EPS Stock price $ Number of shares $ 16,500,000 b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.) Note: Do not round intermediate calculations and round your answers to 2 decimal places. Before stock dividend After stock dividend $ 15,000,000 6,000,000 24,000,000 $ 45,000,000 16,500,000 c. How many shares would an investor end up with if he or she originally had 140 shares? Note: Do not round intermediate calculations and round your answer to the nearest whole share. d. What is the investor's total investment worth before and after the stock dividend if the P/E ratio remains constant? Note: Do not round intermediate calculations and round your answers to the nearest whole dollar. Total Investment $ $ 6,000 6,000
Transcribed Image Text: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 (3,000,000 shares at $5 par) Capital in excess of par* Retained earnings Net worth *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 $10 per share. The company had total earnings of $3,000,000 during the year. With 3,000,000 shares outstanding, earnings per share were $1. The firm has a P/E ratio of 10. a. What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. Note: Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000). Common stock Capital in excess of par Retained earnings Net worth EPS Stock price $ Number of shares $ 16,500,000 b. What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.) Note: Do not round intermediate calculations and round your answers to 2 decimal places. Before stock dividend After stock dividend $ 15,000,000 6,000,000 24,000,000 $ 45,000,000 16,500,000 c. How many shares would an investor end up with if he or she originally had 140 shares? Note: Do not round intermediate calculations and round your answer to the nearest whole share. d. What is the investor's total investment worth before and after the stock dividend if the P/E ratio remains constant? Note: Do not round intermediate calculations and round your answers to the nearest whole dollar. Total Investment $ $ 6,000 6,000
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