Question

Sandhill Co. has had 4 years of record earnings. Due to this success, the market price of its 455,000 shares of $4 par value common stock has increased from $14 per share to $54. During this period, paid-in capital remained the same at $5,460,000. Retained earnings increased from $4,095,000 to $27,300,000. 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)

Sandhill Co.
		Original Balance		After Dividend		After Split
Paid-in capital		$		$
Retained earnings
Total stockholder’s equity		$		$		$
Shares outstanding

(c)

1.		Stock dividend - par value per share		$
2.		2-for-1 stock split - par value per share		$

Answer 1