On October 31, the stockholders? equity section of Pele Company?s balance sheet

Question

On October 31, the stockholders? equity section of Pele Company?s balance sheet consists of common stock $587,400 and retained earnings $444,200.

Pele is considering the following two courses of action:

The current market price is $17 per share.

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

(1) Declaring a 5% stock dividend on the 97,900 $6 par value shares outstanding (2) Effecting a 2-for-1 stock split that will reduce par value to $3 per share. On October 31, the stockholders' equity section of Pele Company's balance sheet consists of common stock $587,400 and retained earnings $444,200. Pele is considering the following two courses of action: The current market price is $17 per share. Prepare a tabular summary of the effects of the alternative actions on the company's stockholders' equity and outstanding shares.

Explanation / Answer

P Company Balance Sheet Before action After stock dividend After stock split Stockholders' equity   Paid in capital $            587,400 $587,400+(97,900*5%*$17) = $670,615 $                      587,400 Retained earnings $            444,200 $444,200 - (97,900*5%*$17) = $360,985 $                      444,200 Total stockholders' equity $        1,031,600 $                                                            1,031,600 $                  1,031,600 outstanding shares                   97,900 97,900+(97,900*5%) = 102,795 97,900*2 = 195,800

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