On October 31, the stockholders\' equity section of Ivanhoe Company\'s balance s

Question

On October 31, the stockholders' equity section of Ivanhoe Company's balance sheet consists of common stock $332,000 and retained earnings $393,000. Ivanhoe is considering the following two courses of action: Declaring a 6% stock dividend on the 83,000 $4 par value shares outstanding Effecting a 2-for-l stock split that will reduce par value to $2 per share. The current market price is $16 per share. Prepare a tabular summary of the effects of the alternative actions on the company's stockholders' equity and outstanding shares.

Explanation / Answer

Before Action After Stock dividend @6% on 83000 shares After Stock Spilt it is 2 for 1 Stockholder Equity Paid In Capital $ 332000 664000 332000 Retained earnings 393000 787200 394200 Total Stockholder Equity 725000 1451200 726200 Outstanding Shares 83000 8980 91980 Stock Dividend No. of Common Stock issue 8980 Opening Balance of Common Stock 83000 Total 91485 Par Value 4 Paid in capital 726200 Stock dividend reduced fronm retained Earnings

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