Question

Stock Dividends versus Stock Splits

Campbell Company wants to increase the number of shares of its common stock outstanding and is considering a stock dividend versus a stock split. The Stockholders’ Equity section of the firm’s most recent balance sheet appeared as follows:

Common stock, $10 par, 50,000 shares issued and outstanding	$500,000
Additional paid-in capital	750,000
Retained earnings	880,000
Total stockholders’ equity	$2,130,000

If a stock dividend is chosen, the firm wants to declare a 100% stock dividend. Because the stock dividend qualifies as a ‘‘large stock dividend,’’ it must be recorded at par value. If a stock split is chosen, Campbell will declare a 2-for-1 split.

Required:

1. Compare the effects of the stock dividends and stock splits on the accounting equation. If an amount is zero, enter "0".

Item	Assets	Liabilities	Stockholders' equity
Stock dividend	No effect	No effect	Increase
Net impact on each category	$	$	$
Stock split	No effect	No effect	No effect
Net impact on each category	$	$	$

2. a. Develop the Stockholders' Equity category of Campbell's balance sheet after the stock dividend.

Campbell Company
Partial Balance Sheet
After the Stock Dividend
Stockholder's Equity
	$
Total stockholders' equity	$

2. b. Develop the Stockholders' Equity category of Campbell's balance sheet after the stock split.

Campbell Company
Partial Balance Sheet
After the Stock Split
Stockholders' Equity
	$
Total stockholders' equity	$

Answer 1

1.

	Assets	Liabilities	Stockholders Equity
Stock Dividend	No Effect	No Effect	No Effect
	0	0	0
Stock Split	No Effect	No Effect	No Effect
	0	0	0

For stock dividend, Common stock increases and retained earnings decreases by same amount, thereby no impact on total stockholders equity

2.a.

Campbell Company
Partial Balance Sheet
After the Stock Dividend
Stockholder's Equity
Common stock, $10 par, 100,000 shares issued and outstanding	$     10,00,000
Additional Paid in Capital	$        7,50,000
Retained Earnings	$        3,80,000
Total stockholders' equity	$     21,30,000

2b.

Campbell Company
Partial Balance Sheet
After the Stock Split
Stockholder's Equity
Common stock, $5 par, 100,000 shares issued and outstanding	$        5,00,000
Additional Paid in Capital	$        7,50,000
Retained Earnings	$        8,80,000
Total stockholders' equity	$     21,30,000