On October 31 the stockholders\' equity section of Lynch Company\'s balance shee

Question

On October 31 the stockholders' equity section of Lynch Company's balance sheet consists of common stock $704,000 and retained earnings $406,000. Lynch is considering the following two courses of action: (1) declaring a 5% stock dividend on the 88,000 $8 par value shares outstanding or (2) effecting a 2-for-1 stock split that will reduce par value to $4 per share. The current market price is $14 per share. (Round answers to 0 decimal places, e.g. 20,550.)

Calculate after stock dividend for retainend earnings, and paid in capital, and total stockholders' equity, outstanding shares.

Explanation / Answer

The New Balances can be determined as under: Common stock 88,000 shares of $8 par $704,000 4,400 shares of $8 par (stock dividend) $35,200 $739,200 Share split will increase the number of shares 184,800 shares of $4 par $739,200 Paid in capital in excess of par $26,400 Retained earnings Balance $406,000 Less: stock dividend (4,400 X $14) $ 61,600 $344,400

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