Do It! Review 11-3b Sheridan Company has had 4 years of record earnings. Due to

Question

Do It! Review 11-3b Sheridan Company has had 4 years of record earnings. Due to this success, the market price of its 445,000 shares of $2 par value common stock has increased from $15 per share to $51. During this period, paid-in capital remained the same at $2,670,000. Retained earnings increased from $2,002,500 to $13,350,000. 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. 1. Stock dividend - retained earnings 2. 2-for-1 stock split retained earnings Sheridan Company Original Balance After Dividend After Split Paid-in capital Retained earnings Total stockholder's equity Shares outstanding 1. Stock dividend - par value per share 2. 2-for-1 stock split - par value per share

Explanation / Answer

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. a. Stock Dividend: Retained Earning will be reduced by 3404250. No of Existing Shares 445000 No of Shares *Stock Dividend 15% 66750 No of Shares Market Value of Stock Dividend 66750*51 3404250 Par Value of Stock Dividend 66750*2 133500 2 for 1 Split: No Impact on Retained Earning b. Original balance After Dividend After Split Paid-in Capital 2670000 6074250 2670000 Retained Earning 13350000 9945750 13350000 Total ShareholdEr Equity 16020000 16020000 16020000 Shares outstanding 445000 511750 890000 Paid In Capital Impact of Dividend 66750*51 3404250 c Stock Dividend: Par Value 2 Split : Par Value 1 2 for 1 split, make no of share double, but par value half

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