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What adjustments would have to be made to the capital

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Question :

Health Systems Inc. is considering a 10 percent stock dividend. The capital accounts are as follows: Common stock (2,000,000 shares at $10 par) $20,000,000

Capital in excess of par* 10,000,000

Retained earnings 35,000,000 Net worth $65,000,000 l

*The increase in capital in excess of par as a result of a stock dividend is equal to the shares created times (Market price - Par value). The company's stock is selling for $30 per share. The company had total earnings of $5,000,000 with 2,000,000 shares outstanding and earnings per share were $2.50. The ?rm has a P/E ratio of 12. 

What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts.

Reference no: EM132405406

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