Question

On July 1, Davidson Corporation had the following capital structure: Common stock ( $4 par value) Additional paid-in capital Retained earnings Treasury stock $ 606,000 1,040,000 770,000 Required: Complete the table below for each of the two following independent cases: ((Round "Par value per share" amounts to 2 decimal places.) Case 1: The board of directors declared and issued a 40 percent stock dividend when the stock was selling at $6 per share. Case 2: The board of directors announced a 6-for-5 stock split (i.e., a 20 percent increase in the number of shares). The market price prior to the split was $6 per share. Items Before Dividend and Split After Stock Dividend After Stock Split $ 4.00 Common stock account Par value per share Shares outstanding Additional paid-in capital Retained earnings Total stockholders' equity | $ $ 1,040,000 270,000

Answer 1

Items	Before Dividend and Split		After Stock Dividend		After Stock Split
Common Stock account	$606,000		$848,400		$606,000
Par value per share	$4		$4		$3.33
Shares Outstanding	151,500		212,100		181,800
Additional paid-in capital	$1,040,000		$1,040,000		$1,040,000
Retained earnings	$770,000		$527,600		$770,000
Total stockholders' equity	$2,416,000		$2,416,000		$2,416,000
Explanation
Neither the stock dividend nor stock split changed total stockholders’ equity because
The stock dividend transferred funds out of retained earnings to the common stock account,
it increased the number of shares outstanding but did not change the par value per share.
The stock split did not change any account balances, its only effects increase the number of
shares decrease the par value per share.