Question

DO IT! 11-3b Spears Company has had 4 years of record earnings. Due to this success, the market price of its 400,000 shares of S2 par value common stock has increased from S6 per share to $50. During this period, paid-in capital remained the same at $2,400,000. Retained earnings increased from $1,800,000 to $12,000,000, CEO Don Ames is considering either (1) a 15% stock dividend or (2) a 2-for-1 stock split. He asks you to show the before-and-after effects of each option on (a) retained earnings, (b) total stockholders' equity, and (c) par value per share.

Answer 1

Solution:

Particulars	Before action	After 15% stock dividend	After 2 for 1 stock split
Paid in capital	$2,400,000.00	$5,400,000.00	$2,400,000.00
Retained earnings	$12,000,000.00	$9,000,000.00	$12,000,000.00
Total stockholder's equity	$14,400,000.00	$14,400,000.00	$14,400,000.00
Outstanding shares	400000	460000	800000
Par value per share	$2.00	$2.00	$1.00