Question

Carla Vista Co. has had 4 years of record earnings. Due to this success, the market price of its 470,000 shares of $4 par value common stock has increased from $15 per share to $54. During this period, paid-in capital remained the same at $5,640,000. Retained earnings increased from $4,230,000 to $28,200,000. 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 $______

2.      2-for-1 stock split - retained earnings $______

(B)

PAID-IN CAPITAL: Original Balance: ______ After dividend: _____ After Split: _____
RETAINED EARNINGS: Original Balance: _____ After dividend: _____ After Split: _____
TOTAL STOCKHOLDERS EQUITY: Originical Balance: _____ After dividend: _____ After Split: _____
SHARES OUTSTANDING: Original Balance: _____ After dividend: _____ After Split: ______

(C)

Stock dividend - par value per share $______

2-for-1 stock split - par value per share $______

Answer 1