Swan and Duboner Corporation has the following stockholders’ equity on December 31, 1999:

Six percent preferred stock: $100 par value, 20,000 shares authorized, 5,000 shares issued and outstanding $ 500,000 Common stock: $5 par value, 1,000,000 shares authorized, 250,000 shares issued 1,250,000 Additional paid-in capital 1,740,000 Total contributed capital $3,490,000 Retained earnings 850,000 Total stockholders’ equity $4,340,000 The corporation had the following transactions during 2000:

1. February 1: Declared a dividend of $6 per share on the preferred stock, and $0.50 per share on the common stock.

2. February 10: The board of directors established this as the record date.

3. February 25: The dividends were paid.

4. March 31: A two-for-one stock split on the common stock was declared and issued.

5. April 30: The corporation bought back 100,000 shares of its common stock for $6 per share. These shares will be reissued in the future.

6. June 30: Employee stock options were granted for 10,000 shares. The current market price is $5.50 per share. The exercise price is $6.00 per share.

7. August 15: The corporation sold 20,000 shares of its treasury stock for

$7.00 per share.

8. October 31: Employees exercised their stock options. The current market price is $7.50 per share.

9. December 31: The net income for the year is $600,000.

Required

a. Set up an accounting equation and record the above transactions.

b. Calculate EPS, assuming a weighted average of 380,000 common shares outstanding.

c. Why do companies, in general, declare and issue a stock split?