Question

Do It! Review 11-3b Wildhorse Co. has had 4 years of record earnings. Due to this success, the market price of its 415,000 shares of $4 par value common stock has increased from $14 per share to $51. During this period, paid-in capital remained the same at $4,980,000. Retained earnings increased from $3,735,000 to $24,900,000. 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. 1. Stock dividend - retained earnings 2. 2-for-1 stock split - retained earnings (b) Wildhorse Co. Original Balance After Dividend After Split Paid-in capital Retained earnings Total stockholder's equity Shares outstanding (c) 1. Stock dividend - par value per share 2. 2-for-1 stock split - par value per shares

Answer 1

A) 1. impact: -ve $ 249000 (4*15%*415000 shares)

2. No impact

B) .

	Original Balance	After Dividend	After Split
Paid in capital (a)	49,80,000	49,80,000	49,80,000
Retained earning (b)	2,49,00,000	2,46,51,000	2,49,00,000
		(=>24900000-249000)
Total shareholder's equity (a+b)	2,98,80,000	2,96,31,000	2,98,80,000
Shares Outstanding	415000	415000	622500
			(415000*3/2)

C) 1. $4

2. $ 2.6667

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