Question

Please fix the answers bolded in red

Carla Vista Co. has had 4 years of record earnings. Due to this success, the market price of its 500,000 shares of $4 par value common stock has increased from $14 per share to $55. During this period, paid-in capital remained the same at $6,000,000. Retained earnings increased from $4,500,000 to $30,000,000. 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. (a) 1. Stock dividend - retained earnings 25,875,000 2. 2-for-1 stock split - retained earnings 1 30,000,000 (b) Carla Vista Co. Original Balance After Dividend After Split Paid-in capital 2,000,000 6,125,000 2,000,000 Retained earnings Í 30,000,000 7 25,875,000 30,000,000 Total stockholder's equity 32,000,000 32,000,000 32,000,000 Shares outstanding 500,000 T 575,000 T 1,000,000

Answer 1

Solution:

Carla Vista Company
Particulars	Original balance	After dividend	After split
Paid in capital	$6,000,000.00	$10,125,000.00	$6,000,000.00
Retained earnings	$30,000,000.00	$25,875,000.00	$30,000,000.00
Total stockholder's equity	$36,000,000.00	$36,000,000.00	$36,000,000.00
Shares outstanding	500000	575000	1000000