The company with the common equity accounts shown here has decided on a two-for-

Question

The company with the common equity accounts shown here has decided on a two-for-one stock split. The firm’s 31-cent-per-share cash dividend on the new (postsplit) shares represents an increase of 5 percent over last year’s dividend on the presplit stock.

What is the new par value of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

What was last year’s dividend per share? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

  Common stock ($1 par value) $   530,000   Capital surplus 1,561,000   Retained earnings 3,890,000      Total owners’ equity $ 5,981,000

Explanation / Answer

What is the new par value of the stock?

$1/2 =$.5 per share

What was last year’s dividend per share?

since you own 2 shares after the stock split the dividend is $.62 per one old share. Since this represents a 5% increase over the prior year, the dividend on the pre-split share is $.62/1.05 = .57 per share

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