Question

Brice Company completed the following transactions in Year 1, the first year of operation:

Issued 36,000 shares of no-par common stock for $15 per share.

Issued 9,800 shares of $25 par, 5 percent, preferred stock for $25 per share.

Paid a cash dividend of $12,250 to preferred shareholders.

Issued a 10 percent stock dividend on no-par common stock. The market value at the dividend declaration date was $25 per share.

Later that year, issued a 2-for-1 split on the shares of outstanding common stock. The market price of the stock at that time was $70 per share.

Produced $200,000 of cash revenues and incurred $95,000 of cash operating expenses.

Closed the revenue, expense, and dividend accounts to retained earnings.

Required
a. Record each of these events in a horizontal statements model.

Answer 1

The 2-for-1 stock split executed by Brice Company doubles the number of shares while halving the price per share, with no direct impact on the company's assets, liabilities, or stockholders' equity. A detailed recording of the event cannot be provided without more information regarding the initial shares and equity value. The split could, however, potentially make the stock more accessible and liquid in the market.

Step-by-step explanation:

Recording stock transactions, particularly a 2-for-1 stock split, primarily affects the equity section of a company's balance sheet. When Brice Company executed a 2-for-1 stock split, the number of outstanding shares doubled, and the market price typically adjusts to approximately half of its former price, maintaining the overall market capitalization of the company. However, because the problem does not provide the initial number of shares or the value of the initial equity, detailed entries cannot be provided without making assumptions.

For the sake of an example, if the company had 10,000 shares of common stock outstanding at a market value of $70 per share, after the 2-for-1 stock split, there would be 20,000 shares at an estimated market price of $35 per share. This transaction would not affect the assets, liabilities, or overall stockholders' equity of the company – only the par value per share would change accordingly.

A stock split does not result in a capital gain or generate a direct financial benefit to shareholders, such as a dividend, but it might make the stock more affordable and potentially increase liquidity in the market due to the reduced price per share.