The board of directors announces a 2-for-1 stock split on 20,000 outstanding shares of $15.00 par common stock. Immediately after the stock split, the
A. outstanding shares increase to 40,000.
B. outstanding shares decrease to 10,000.
C. par value of the stock remains the same.
D. par value of the stock increases to $30 per share.
A stockholder’s ownership percentage in the stock of a corporation ______ upon the distribution of stock dividend.
A. increases
B. decreases
C. can increase or decrease depending on the type of stock dividend
D. will stay the same
Restrictions on retained earnings
A. are usually reported in the notes to the financial statements.
B. happen frequently.
C. are disclosed on the income statement.
D. reduce total assets on the balance sheet.
To determine the correct answer to the first question, you need to understand the concept of a stock split and how it affects the number of outstanding shares and the par value of the stock.
A stock split is a corporate action where a company divides its existing shares into multiple shares. In this case, the board of directors announced a 2-for-1 stock split on 20,000 outstanding shares of $15.00 par common stock.
To calculate the new number of outstanding shares after the stock split, you simply multiply the original number of shares by the split ratio. In this case, the split ratio is 2-for-1, so you would multiply 20,000 shares by 2. The answer is 40,000 shares.
Therefore, the correct answer to the first question is A. outstanding shares increase to 40,000.
Moving on to the second question, you need to understand how a stock dividend affects a stockholder's ownership percentage in a corporation.
A stock dividend is a distribution of additional shares to existing shareholders. It is usually expressed as a percentage, such as a 10% stock dividend. When a stock dividend is declared, it increases the number of shares held by each shareholder.
Although the number of shares held by each shareholder increases, the ownership percentage remains the same. The reason is that while the number of shares held increases, the total number of outstanding shares also increases proportionally. This maintains the proportional ownership percentage for each shareholder.
Therefore, the correct answer to the second question is D. the ownership percentage will stay the same.
Moving on to the third question, you need to understand the concept of restrictions on retained earnings and where they are usually reported in the financial statements.
Restrictions on retained earnings are limitations or conditions imposed on a company's retained earnings, which are the cumulative earnings of the company that have been retained and not distributed as dividends.
These restrictions are usually reported in the notes to the financial statements. The notes to the financial statements provide additional information and explanations about various items reported in the financial statements, including any restrictions on retained earnings.
Therefore, the correct answer to the third question is A. restrictions on retained earnings are usually reported in the notes to the financial statements.