QUESTION: 142 Topic 3: Part 2 Sec Three (101 to 203)

On August 15, 19XX, National Corporation announced a 1-for-10 reverse split, the event to occur on September 6, subject to shareholder approval. The stock's closing price on August 14 was $1.375. If nothing changes, at what price would you expect the stock to sell after the stock split is made effective on September 6?

$13.75
$10.00
$2.75
$1.38

Answer(s): A

Explanation:

A reverse stock split, like a regular stock split, should not change market capitalization. Thus, if there are 1/10 as many shares outstanding as previously, they should be worth 10 times as much. Thus, the price after the reverse split would be $13.75 (10 x $1375).

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QUESTION: 143 Topic 3: Part 2 Sec Three (101 to 203)

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XYZ Corp has 1000 shares outstanding and retained earnings of $25,000. Theoretically! what would you expect to happen to the price of their stock, currently Selling for $50 per Share! if a 20% stock dividend is declared?

Price should increase to $60 per share
Price should decrease to $40 per share.
Price should decrease to $41.67 per share
Nothing, price should remain at $50.

Answer(s): C

Explanation:

The total market capitalization of 1,000 shares is $50,000. That should remain about the same following the issuance of the 200 shares of stock dividend. Thus, dividing $50,000 by 1,200 shares equals $41.67 per share.

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QUESTION: 144 Topic 3: Part 2 Sec Three (101 to 203)

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A company had 150,000 shares outstanding on January 1. On March 1,75,000 additional shares were issued through a stock dividend. Then on November 1, the company issued 60,000 shares for cash. The number of shares to be used in the denominator of the EPS calculation for the year is

222,500 shares.
225,000 shares.
235,000 shares.
285,000 shares

Answer(s): C

Explanation:

The weighted-average of shares outstanding during the year is used in the EPS denominator. Shares issued in a stock dividend are assumed to have been outstanding as of the beginning of the earliest accounting period presented. Thus, the 75,000 shares issued on March 1 are deemed to have been outstanding on January 1. The EPS denominator equals 235,000 shares {[150,000 x (12 months ÷ 12 months)] + [75,000 x (12 months ÷ 12 months)) + [60,000 x (2 months ÷ 12 months)]}

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