Need help on Accounting HW

[Trikat]

Topaz Incorporated began business on January 1 and issued 100,000 shares of common stock. On July 1, the company declared and issued a 2-1 stock split. On October 15, the company purchased 20,000 shares of stock as treasury stock and reissued 5,000 by the end of the month.
How many shares of stock are issued and outstanding on December 31?

It is part of my take home quiz.
I want to say 85,000, but I am not confident about my answer.

Edit: Bah i didn't see the 2-1 stock split.
Answer is 185,000.
I have more questions about the quiz, but eh. Don't wanna bother you ATOT guys too much.

 

[Dragoon42]

do you know what a 2-1 stock split does?

 

[JMWarren]

You mean 185,000?

100,000 = 200,000 after 2:1 Split

Then 180,000 after 20,000 tresury stock + 5,000 reissued = 185,000

 

[Trikat]

Originally posted by: Dragoon42
do you know what a 2-1 stock split does?

O crap I didn't read that part.
Sorry.
I know 2-1 doubles the shares authorize and issued.

Would that mean the answer is 185,000?

Ah, thx for your help guys. Catching that error would definitely help me with the answer Dragoon.

 

[JMWarren]

Yeah, 185,000 should do it. What course is this for? Please say highschool....

 

[WildHorse]

(100,000 X 2 ) - 20,000 + 5,000 = 185,000

The more interesting question is, why do companies declare 2 for 1 stock splits?
If you have an opportunity to do something for extra credit, I suggest you research answers to that question.

 

[Trikat]

Originally posted by: JMWarren
Yeah, 185,000 should do it. What course is this for? Please say highschool....

It is accounting 2121. Yes it is in College, but the thing is I screwed up my time in college.
I originally was a Computer Engineering major. I switched to business my 2nd half of my Sophmore year (This Jan).
All I got down for transfer is Calc.
I took Calc 1 and 2 and diff eq.
Took some Engneering classes too.
Also had some English classes.

Edit: I am taking Macro and micro at the same time though. Kinda really behind now because of the switch. :/

 

[Trikat]

Originally posted by: scott
(100,000 X 2 ) - 20,000 + 5,000 = 185,000

The more interesting question is, why do companies declare 2 for 1 stock splits?
If you have an opportunity to do something for extra credit, I suggest you research answers to that question.

Eh, google is my friend.
Aparently stock splits are used to mainly make the stock look more attractive.
Not everyone will want to buy a $300+ per share stock. Perhaps big numbers scare away many people or if it is lower, more people can buy shares in that company.

 

[JMWarren]

Now check out stock dividends and how they compare to stock splits.

 

[Trikat]

Originally posted by: JMWarren
Now check out stock dividends and how they compare to stock splits.

Bah that one I knew off the top of my head.
Dividends give people money or more stock. I bascially makes the shareholders happier and more willing to stay with the company.
It can also show the company is in good shape.
Dividends do hurt the company that issues it as they have to pay those dividends.

Anyways I gtg. Finish up this quiz. Lunch. Class.

 

[JMWarren]

But a stock dividend doesn't give the shareholder any additional value as it deminishes the share price at an equal rate to the increase in shares. Additionally it is issues out of retained earnings so it reduces the maximum dividends payable....

 

[WildHorse]

Originally posted by: Trikat

Originally posted by: scott
(100,000 X 2 ) - 20,000 + 5,000 = 185,000

The more interesting question is, why do companies declare 2 for 1 stock splits?
If you have an opportunity to do something for extra credit, I suggest you research answers to that question.

Eh, google is my friend.
Aparently stock splits are used to mainly make the stock look more attractive.
Not everyone will want to buy a $300+ per share stock. Perhaps big numbers scare away many people or if it is lower, more people can buy shares in that company.

There is no definitive answer.

Some say the idea for stock splits is sold to management by consulting firms & investment banks as a way of producing revenue for themselves.

Or, maybe it's psychological, with a split beeing interpreted by the market as an indication by management that things are going well.

Or, maybe management has trouble with a few big pension funds that own gigantic blocks of their stock, so they want to "choose their clientele" by lowering share price through a split so we little people can buy it too.

There're other ideas too. You can read the occasional scholarly paper on some of them in various Finance journals in your college library.