On December 31, 2017, Nehpton Ltd. reported $3 million of common shares and $6 million of retained

Question:

On December 31, 2017, Nehpton Ltd. reported $3 million of common shares and $6 million of retained earnings. On that date, the company had five million shares authorized and two million outstanding. Management is considering a 10 percent stock dividend or a two-for-one stock split and would like to know the impact on the equity section of the two transactions.

Required:

a. Prepare the equity section of Nehpton’s balance sheet under the following conditions:

i. As originally reported;

ii. If management declared a 10 percent stock dividend;

iii. If management declared a two-for-one stock split.

b. Explain how earnings per share would be affected in each case. Which situation would be most attractive to the shareholders?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...