Exercise 11-7 On October 31, the stockholders’ equity section of Carla Vista Co.’s balance sheet consists...

Exercise 11-7

On October 31, the stockholders’ equity section of Carla Vista Co.’s balance sheet consists of common stock $352,000 and retained earnings $398,000. Carla Vista is considering the following two courses of action:

(1)		Declaring a 6% stock dividend on the 88,000 $4 par value shares outstanding
(2)		Effecting a 2-for-1 stock split that will reduce par value to $2 per share.

The current market price is $16 per share.

Prepare a tabular summary of the effects of the alternative actions on the company’s stockholders’ equity and outstanding shares.

Carla Vista Co.’s Balance Sheet
	Before Action	After Stock Dividend	After Stock Split
Stockholders’ equity
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 stockholders’ equity	$enter a total of the two previous amounts	$enter a total of the two previous amounts	$enter a total of the two previous amounts
Outstanding shares	enter a number of shares	enter a number of shares	enter a number of shares

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Expert Solution

Requirement asked

	Before Action	After Stock Dividend	After Stock Split
Stockholders’ equity
Paid-in capital	$352,000	$436,480	$352,000
Retained earnings	$398,000	$313,520	$398,000
Total stockholders’ equity	$750,000	$750,000	$750,000
Outstanding shares	88,000	109,120	176,000

--Working

	Before Action	After Stock Dividend	After Stock Split
Stockholders’ equity
Paid-in capital	352000	=352000+(880006%16)	=176000*2
Retained earnings	398000	=398000-(880006%16)	398000
Total stockholders’ equity	=352000+398000	=436480+313520	=352000+398000
Outstanding shares	=352000/4	=436480/4	=88000*2

ekkarill92 answered 3 years ago

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