Comprehensive Problem: Stockholders’ Equity
LP&G Corporation has the following stockholders’ equity at December 31, 1999:
|
Common stock: $20 par, authorized 700,000 |
|
|
shares, issued 200,000 shares |
$ 4,000,000 |
|
Additional paid in capital |
3,200,000 |
|
Total contributed capital |
7,200,000 |
|
Retained earnings |
5,400,000 |
|
Total stockholders’ equity |
$12,600,000 |
During 2000, the following transactions occurred:
1. January 31: A two for one common stock split was declared by the board of directors. The shares were issued and the market price was $110 per share.
2. March 15: The Corporation repurchased 50,000 shares of its common stock as treasury stock at $54 per share.
3. May 31: The board of directors declared a $2 cash dividend per share.
4. June 10: This is the date of record that the board of directors established.
5. June 20: The dividends were paid.
6. August 30: The Corporation granted employee stock options of 20,000 shares. The market price was $54 per share. The exercise price is $54 per share.
7. October 15: The Corporation sold 30,000 shares of its treasury stock for $55 per share.
8. November 25: Employee stock options were exercised. The market price was $56 per share.
Required
a. Set up an accounting equation and record the above transactions.
b. Why did the corporation issue a two for for stock split?
c. Why would a company issue a stock dividend instead of cash? What impact does a stock dividend have on overall stockholders’ equity?