Question

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Do It! Review 11-3b Sunland Company has had 4 years of record earnings. Due to this success, the market price of its 460,000 shares of $4 par value common stock has increased from $12 per share to $52. During this perio paid-in capital remained the same at $5,520,000. Retained earnings increased from $4,140,000 to $27,600,000. CEO Don Ames is considering either (1) a 15% stock dividend or (2) a 2-for-1 stock split. F 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 2. 2-for-1 stock split - retained earnings s (b) Sunland 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:

1. Stock dividend - Retained earnings = $27,600,000 - (460000*15%*$52) = $24,012,000

2. 2 for 1 stock split - Retained Earnings = $27,600,000

Solution b:

Sunland Company
Particulars	Original balance	After dividend	After Split
Paid in capital	$5,520,000.00	$9,108,000.00	$5,520,000.00
Retained Earnings	$27,600,000.00	$24,012,000.00	$27,600,000.00
Total stockholder's equity	$33,120,000.00	$33,120,000.00	$33,120,000.00
Shares outstanding	460000	529000	920000

Solution c:

1. Stock dividend - Par value per share = $4

2. Stock Split - Par value per share = $4/2 = $2