Exercise 11-15 Before Action After Stock Dividend After Stock Split Open Show Wo
ID: 2401905 • Letter: E
Question
Exercise 11-15
Before
Action
After
Stock
Dividend
After
Stock
Split
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Exercise 11-15
On October 31, the stockholders’ equity section of Hillman Company consists of common stock $289,800 and retained earnings $930,200. Hillman is considering the following two courses of action: (1) declaring a 5% stock dividend on the 48,300, $6 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $3 per share. The current market price is $16 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.
Before
Action
After
Stock
Dividend
After
Stock
Split
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SUBMIT ANSWER
Explanation / Answer
Answers
---This increases no. of common stock shares and hence increases total value of paid in capital.
---Since it is a DIVIDEND, the whole amount also gets deducted from retained earnings.
---No. of shares increases, Common Stock value increases, but Par Value stays the same.
Working #1: Stock Dividend
A
No. of Common Stock
48,300
B
Stock Dividend rate
5%
C = A x B
No. of shares as stock dividend
2,415 shares
D
Market Price per share
$ 16.00
E = C x D
Total Stock Dividend
$ 38,640.00
F = E x $6 par
Stock Dividend distributed as "Common Stock"
$ 14,490.00
G = E x $(16 - 6)
Stock Dividend distributed as "Paid in Capital in excess of Par"
$ 24,150.00
---Under this, 1 shares is spilt into 2 or more shares.
---Hence, no. of common stock share increases.
---However, total value of common stock stays the same as it was before such split.
---No. of shares increases, Common Stock value stays the same, AND Par Value DECREASES.
Working #2: Stock Split
A [given]
No. of common Stock
48,300
B [given]
Stock Split decided
2 shares for 1 existing share
C = A x (2/1)
No. of Shares after split
96,600
D [given]
Value of Common Stock [stays same]
$ 289,800.00
E = D/C
New Par Value per share
$ 3.00
OR
A [given]
Reduced new Par Value
$ 3.00
B [given]
Value of Common Stock [stays same]
$ 289,800.00
C=B/A
No. of Shares after split
96,600
----Note that only column ‘A’, ‘C’ and ‘D’ are to be filled as answer figures.
----Figures within “( )” denote a ‘decrease’
After Stock Dividend
After Stock Split [Answer Values]
Before Action
From Working #1 [just for understanding]
Answer Values
(A)
(B)
(C=A+B)
(D)
Stockholders’ equity
Paid-in capital
Common stock
$ 289,800.00
$ 14,490.00
$ 304,290.00
$ 289,800.00
In excess of par value
$ -
$ 24,150.00
$ 24,150.00
$ -
Total paid-in capital
$ 289,800.00
$ 38,640.00
$ 328,440.00
$ 289,800.00
Retained earnings
$ 930,200.00
$ (38,640.00) total dividend amount
$ 891,560.00
$ 930,200.00
Total stockholders’ equity
$ 1,220,000.00
$ -
$ 1,220,000.00
$ 1,220,000.00
Outstanding shares
48,300
[48300 + 2415]
50,715
96,600
Par value per share
$ 6.00
[stays same]
$ 6.00
$ 3.00
Working #1: Stock Dividend
A
No. of Common Stock
48,300
B
Stock Dividend rate
5%
C = A x B
No. of shares as stock dividend
2,415 shares
D
Market Price per share
$ 16.00
E = C x D
Total Stock Dividend
$ 38,640.00
F = E x $6 par
Stock Dividend distributed as "Common Stock"
$ 14,490.00
G = E x $(16 - 6)
Stock Dividend distributed as "Paid in Capital in excess of Par"
$ 24,150.00
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