On October 31, the stockholders’ equity section of Sheridan Company consists of common stock $275,000 and...

On October 31, the stockholders’ equity section of Sheridan Company consists of common stock $275,000 and retained earnings $885,000. Sheridan is considering the following two courses of action: (1) declaring a 4% stock dividend on the 27,500, $10 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $14 per share. Prepare a tabular summary of the effects of the alternative actions on the components of stockholders’ equity, outstanding shares, and par value per share.

Expert Solution

	Before Action	After stock dividend	After stock split
Stockholder's equity
Paid in capital	$ 275,000	$ 385,000	$ 275,000
In excess of par	$ -	$ 44,000	$ -
Retained earnings	$ 885,000	$ 731,000	$ 885,000
Total stockholder's equity	$1,160,000	$1,160,000	$1,160,000
Outstanding shares	27500	28600	55000
Par Value Per Share	$ 10	$ 10	$ 5

	Before Action	After stock dividend	After stock split
Stockholder's equity
Paid in capital	275000	=(2750004%10)+275000	275000
In excess of par	0	=(2750004%4)	0
Retained earnings	885000	=885000-(429000-275000)	885000
Total stockholder's equity	=SUM(B3:B5)	=SUM(C3:C5)	=SUM(D3:D5)
Outstanding shares	27500	=27500+(27500*4%)	=27500*2
Par Value Per Share	10	10	5

ekkarill92 answered 2 years ago

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