Exercise 11-7 On October 31, the stockholders equity section of Sandhill Co.s ba

Question

Exercise 11-7 On October 31, the stockholders equity section of Sandhill Co.s balance sheet consists of common stock $326,000 and retained earnings $410,000. Sandhill is considering the following two courses of action: (1) Declaring a 6% stock dividend on the 81,500 $4 par value shares outstanding (2) Effecting a 2-for-1 stock split that will reduce par value to $2 per share The current market price is $13 per share. Prepare a tabular summary of the effects of the alternative actions on the company's stockholders' equity and outstanding shares. Sandhill Co.'s Balance Sheet Before Action After Stock Dividend After Stock Split Stockholders' equity Paid-in capital Retained earnings Total stockholders' equity Outstanding shares

Explanation / Answer

Before action After stock dividend After stock split Stockholders' equity Paid in capital 326000 389570 326000 Retained earnings 410000 346430 410000 Total Stockholders' equity 736000 736000 736000 Outstanding shares 81500 86390 163000

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