Exercise 11-7 On October 31, the stockholders’ equity section of Pele Company’s
ID: 2472075 • Letter: E
Question
Exercise 11-7
On October 31, the stockholders’ equity section of Pele Company’s balance sheet consists of common stock $581,400 and retained earnings $445,500.
Pele is considering the following two courses of action:
The current market price is $15 per share.
Prepare a tabular summary of the effects of the alternative actions on the company’s stockholders’ equity and outstanding shares.
Pele Company’s
Balance Sheet
Explanation / Answer
Tabular summary of the effects of the alternative actions on the company’s stockholders’ equity and outstanding shares:
Pele Company’s
Balance Sheet
Before Action
After Stock Dividend
After Stock Split
Stockholders’ equity
Paid-in capital
$ 581,400
668610
$ 581,400
581400+ (96900 Shares*6%)*$15
(193800*$3)
Retained earnings
$ 445,500
358290
$ 445,500
445500- (96900 Shares*6%)*$15
(No Change)
Total stockholders’ equity
$ 1,026,900
$ 1,026,900
$ 1,026,900
Outstanding shares
96,900
102,714
193,800
(96900+(96900*6%)
(96900*2/1)
Tabular summary of the effects of the alternative actions on the company’s stockholders’ equity and outstanding shares:
Pele Company’s
Balance Sheet
Before Action
After Stock Dividend
After Stock Split
Stockholders’ equity
Paid-in capital
$ 581,400
668610
$ 581,400
581400+ (96900 Shares*6%)*$15
(193800*$3)
Retained earnings
$ 445,500
358290
$ 445,500
445500- (96900 Shares*6%)*$15
(No Change)
Total stockholders’ equity
$ 1,026,900
$ 1,026,900
$ 1,026,900
Outstanding shares
96,900
102,714
193,800
(96900+(96900*6%)
(96900*2/1)
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