Question

Ivanhoe Company has had 4 years of record earnings. Due to this success, the market price of its 515,000 shares of $2 par value common stock has increased from $15 per share to $52. During this period, paid-in capital remained the same at $3,090,000. Retained earnings increased from $2,317,500 to $15,450,000. 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		$enter a dollar amount
2.		2-for-1 stock split - retained earnings		$enter a dollar amount

(b)

Ivanhoe Company
		Original Balance		After Dividend		After Split
Paid-in capital		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
Retained earnings		enter a dollar amount		enter a dollar amount		enter a dollar amount
Total stockholder’s equity		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
Shares outstanding		enter a number of shares		enter a number of shares		enter a number of shares

(c)

1.		Stock dividend - par value per share		$enter a dollar amount
2.		2-for-1 stock split - par value per share		$enter a dollar amount

1. Stock dividend - retained earnings $ 2. 2-for-1 stock split - retained earnings $ (b) Ivanhoe Company Original Balance After Dividend After Split Paid-in capital $ Retained earnings Total stockholder's equity $ Shares outstanding 1. Stock dividend - par value per share $ 2. 2-for-1 stock split - par value per share $

Answer 1

Solution a-c:

Particulars	Before action	After 15% stock dividend	After 2 for 1 stock split
Paid in capital	$3,090,000.00	$7,107,000.00	$3,090,000.00
Retained earnings	$15,450,000.00	$11,433,000.00	$15,450,000.00
Total stockholder's equity	$18,540,000.00	$18,540,000.00	$18,540,000.00
Outstanding shares	515000	592250	1030000
Par value per share	$2.00	$2.00	$1.00