On June 30, Sharper Corporation’s stockholders’ equity section of its balance sheet appears as follows before any stock dividend or split. Sharper declares and immediately distributes a 50% stock dividend. Common stock—$10 par value, 120,000 shares authorized, 50,000 shares issued and outstanding $ 500,000 Paid-in capital in excess of par value, common stock 200,000 Retained earnings 660,000 Total stockholders’ equity $ 1,360,000 Assume that instead of distributing a stock dividend, Sharper did a 3-for-1 stock split. Required: (1) Prepare the updated stockholders' equity section after the split. (2) Compute the number of shares outstanding after the split.

(1) See below for the updated stockholders' equity section after the split.

(2) Number of shares outstanding after the split = 150,000

Explanation:

(1) Prepare the updated stockholders' equity section after the split.

A stock split occurs when a company's board of directors decides to raise the number of outstanding shares by issuing additional shares to present shareholders. With stock split, no fund will be generated but common stock par value will fall after the split to make the Common stock total value and Common stock paid-in capital in excess of par value to remain the same. Therefore, the updated stockholders' equity section after the split will be as follows:

Sharper Corporation

Stockholders’ Equity Section of the Balance Sheet

Jun 30

Details                                                                                     Amount ($)  

Common stock - $3.3333 par value, 120,000 shares

authorized, 150,000 shares issued and outstanding            500,000

Paid-in capital in excess of par value, common stock          200,000

Retained earnings                                                                   660,000

Total stockholders’ equity                                                    1,360,000

(2) Compute the number of shares outstanding after the split.

For a 3-for-1 stock split, we have:

Number of shares outstanding after the split = Number of shares outstanding before the split * 3 = 50,000 * 3 = 150,000

By implication, we have:

Common stock par value after the split = Common stock par value before the split / 3 = $10 / 3 = $3.3333 per share