Question

Stock dividend versus stock—Firm The board of Wicker Home Health​ Care, Inc., is exploring ways to expand the number of shares outstanding in an effort to reduce the market price per share to a level that the firm considers more appealing to investors. The options under consideration are a 20% stock dividend​ and, alternatively, a​ 5-for-4 stock split. At the present​ time, the​ firm's equity account and other​ per-share information are given as​ follows:

Preferred stock $ 0

Common Stock (100,000 shares at $1 par). 100,000

Paid in Capital in excess of par 700,000

Retained Earnings 880,000

Total stockholder's equity $1,680,000

Price per share $29

Earnings per share $3.20

Dividend per share $1.02

a.  Show the effect on the equity accounts and​ per-share data of a 20% stock dividend.

b.  Show the effect on the equity accounts and​ per-share data of a​ 5-for-4 stock split.

c.  Which option will accomplish​ Wicker's goal of reducing the current stock price while maintaining a stable level of retained earnings?

d.  What legal constraints might encourage the firm to choose a stock split over a stock dividend​?

Questions-

a.  The number of shares of common stock after the dividend is ___ shares.  ​(Round to the nearest whole​ number.)

The balance in the common stock account after the dividend is ___ (Round to the nearest​ dollar.)

The balance in the p​aid-in capital in excess of par account after the dividend is ___ (Round to the nearest​ dollar.)

The balance in the retained earnings account after the dividend is ___ (Round to the nearest​ dollar.)

The price per share of common stock after the dividend is ____​ (Round to the nearest​ cent.)

The earnings per share​ (EPS) after the dividend is ___(Round to the nearest​ cent.)

b. The number of shares of common stock after the split is ___shares.  ​(Round to the nearest whole​ number.)

The balance in the common stock account after the split is $____​ (Round to the nearest​ dollar.)

The balance in the p​aid-in capital in excess of par account after the split is $ ____​ (Round to the nearest​ dollar.)

The balance in the retained earnings account after the split is ​$ ____​ (Round to the nearest​ dollar.)

The price per share of common stock after the split is $ ___​ (Round to the nearest​ cent.)

The earnings per share​ (EPS) after the split is $____​ (Round to the nearest​ cent.)

c. Which option will accomplish​ Wicker's goal of reducing the current stock price while maintaining a stable level of retained​ earnings?  ​(Select the best answer​ below.)

A. The option in part ​a, the stock​ dividend, will accomplish the goal of reducing the stock price while maintaining a stable level of retained earnings.

B. The option in part ​b, the stock​ split, will accomplish the goal of reducing the stock price while maintaining a stable level of retained earnings.

d. What legal constraints might encourage the firm to choose a stock split over a stock​ dividend?  ​(Select the best answer​ below.)

A. There would be no legal constraint to encourage the firm to choose a stock split over a stock dividend.

B. The firm may be restricted in the number of shares it could issue.

C. The firm may be restricted in the amount of retained earnings available for dividend​ payments, whether cash or stock dividends.

D. The firm may be restricted in the amount of cash it holds.

Answer 1

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