Question

Cullumber Company has had 4 years of record earnings. Due to this success, the market price of its 505,000 shares of $4 par value common stock has increased from $14 per share to $52. During this period, paid-in capital remained the same at $6,060,000. Retained earnings increased from $4,545,000 to $30, 300,000. CEO Don Ames is considering either 1 a 15% stock dividend or 2 a 2-for-1 stock split. He asks you to show e beore-and al ere ects 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 $ Cullumber Company Original Balance After Dividend After Split Paid-in capital Retained earnings Total stockholder's equity Shares outstanding (ey 1. Stock dividend- par value per share 2. 2-for-1 stock split - par value per share

Answer 1

Shares Issued as Stock Dividend = 505,000 Shares X 15% = 75,750 Shares
Stock Dividend = 75,750 Shares X $52 = $3,939,000
Retained Earnings - New Balance = $30,300,000 - $3,939,000 - After Stock Dividend
Retained Earnings - New Balance = $26,361,000 - After Stock Dividend
The Retained Earning Balance after the stock splits remain the same as it was before the split - $30,300,000.
Total Stockholders' Equity does not change - After Stock Split.
	Original Balances	After Dividend	After Split
Paid In Capital	6,060,000	9,999,000	6,060,000
Retained Earnings	30,300,000	26,361,000	30,300,000
Total Stockholder's Equity	36,360,000	36,360,000	36,360,000
Shares Outstanding	505,000	580,750	1,010,000
Par Value per Share	4	4	2