Case: 1
Compute the table below if the board of directors declared a cash dividend of $0.02 per share
Case: 1

Explanation of Solution
Dividends:
Dividends are the rewards to the stockholders for investing their money in the company. Payment of dividend depends upon the decision of the management.
Following is the table that shows the Comparative results (after cash dividends).
Particulars | Before any Dividend | After Cash Dividend |
Common stock account | $60,000 | $60,000 |
Par per share | $0.10 | $0.10 |
Shares outstanding |
$600,000 (1) | $600,000 |
Additional paid- in capital | $ 1,900,000 | $ 1,900,000 |
$ 800,000 | $ 788,000 (2) | |
Total | $2,760,000 | $2,748,000 |
$19,000 |
$7,000 (3) |
Table (1)
Working notes:
Calculate shares outstanding before any dividend:
Shares outstanding before any dividend=Common stock account before any dividendPar value of per share before any dividend =$60,000$0.10= $600,000 (1)
Calculate retained earnings after cash dividend:
Retained earnings after cash dividend)= [(Retained earnings before any dividend−Value of cash dividend)×Shares outstanding before any dividend]= $800,000−$0.02×$600,000= $788,000 (2)
Calculate cash flows from financing activities after cash dividend:
Cash flows from financing activities after cash dividend)= [(Cash flow from financing activities before any dividend−Value of cash dividend)×Shares outstanding before any dividend]= $19,000−$0.02×$600,000= $7,000 (3)
Case: 2
Complete the table below if the board of directors declared and issued a 100 percent stock dividend when the stock was selling at $10 per share.
Case: 2

Explanation of Solution
Stock dividend:
Stock dividend is the payment made in the form of additional shares to the existing shareholders of the company instead of making cash payment with respect to the ownership of shares exercised by the shareholders.
Following is the table that shows the Comparative results (after stock dividend).
Particulars | Before any Dividend | After Cash Dividend | After Stock Dividend |
Common stock account | $60,000 | $60,000 | $120,000 (4) |
Par per share | $0.10 | $0.10 | $0.10 |
Shares outstanding |
600,000 (1) | 600,000 | 1,200,000 (5) |
Additional paid-in capital | $ 1,900,000 | $ 1,900,000 | $1,900,000 |
Retained earnings | $ 800,000 | $ 788,000 (2) | $ 740,000 (6) |
Total stockholders’ equity | $2,760,000 | $2,748,000 | $2,760,000 |
Cash flows from financing activities | $19,000 | $7,000 (3) | $19,000 |
Table (2)
Working notes:
Calculate the value of common stock account after stock dividend:
Common stock account after stock dividend) = (Par value of per share×Shares outstanding after stock dividend)= $0.10×$1,200,000 (5)= $120,000 (4)
Calculate the value of shares outstanding after stock dividend:
Shares outstanding after stock dividend = (Shares outstanding before any dividend×2-for-1Stock split)= $600,000×2= $1,200,000 (5)
Calculate the value of retained earnings after stock dividend:
Retained earnings after stock dividend )= [(Retained earnings before any dividends−Par valueof per share)×Shares outstanding before any dividend]= $800,000−$0.10×$600,000= $740,000 (6)
Case: 3
Complete the table below if the board of directors announced a 2-for-1 stock split and the market price prior to the split was $10 per share.
Case: 3

Explanation of Solution
Stock Splits:
It is a method of increasing the total number of outstanding shares thereby, reducing the market price of each share, however, keeping the corporation’s total market value constant.
Following is the table that shows the Comparative results (after stock split).
Particulars | Before any Dividend | After Cash Dividend | After Stock Dividend | After Stock Split |
Common stock account | $60,000 | $60,000 | $120,000 (4) | $60,000 |
Par per share | $0.10 | $0.10 | $0.10 | $0.05 (7) |
Shares outstanding |
600,000 (1) | 600,000 |
1,200,000 (5) | 1,200,000 (5) |
Additional paid-in capital | $ 1,900,000 | $ 1,900,000 | $1,900,000 | $1,900,000 |
Retained earnings | $ 800,000 | $ 788,000 (2) | $ 740,000 (6) | $ 800,000 |
Total stockholders’ equity | $2,760,000 | $2,748,000 | $2,760,000 | $2,760,000 |
Cash flows from financing activities | $19,000 | $7,000 (3) | $19,000 | $19,000 |
Table (3)
Working note:
Calculate the par value of per share after stock split:
Par value per share after stock split = Par value per share2-for-1 stock split=$0.102= $0.05 (7)
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