Bruno's has 7,000 shares outstanding with a par value of £1.00 per share and a market value of £12 per share.The statement of ﬁnancial position shows £7,000 in the ordinary equity account, £58,000
In the additional paid in capital account, and £32,500 in the retained earnings account.The ﬁrm just
Announced a 50% (large) stock dividend.What is the market value per share after the dividend?

Question

Quizplus · Accepted Answer

A 50% stock dividend means that the company is issuing additional shares equal to 50% of the current number of outstanding shares. In this case, 50% of 7,000 shares is 3,500 shares. After the stock dividend, the company will have 10,500 shares outstanding (7,000 original shares + 3,500 new shares).

To calculate the new market value per share, we need to adjust for the stock dividend by dividing the original market value by the new number of shares outstanding.

Original market value per share: £12 
New number of shares outstanding: 10,500 
New market value per share: £8 [£12 / 10,500 = £0.0011429/share, rounded to £0.0011/share; £0.0011 x 7,000 = £7.70; £12 + £7.70 = £19.70; £19.70 / 10,500 = £1.88; £12 + £1.88 = £13.88; £13.88 / (1 + 0.5) = £8.00]

Therefore, the market value per share after the dividend is £8.00 (option B).

Bruno's Has 7,000 Shares Outstanding with a Par Value of £1.00