Do It! Review 11-3b Oriole Company has had 4 years of record earnings. Due to th

Question

Do It! Review 11-3b Oriole Company has had 4 years of record earnings. Due to this success, the market price of its 435,000 shares of $4 par value common stock has increased from $15 per share to $52. During this period, paid-in capital remained the same at $5,220,000. Retained earnings increased from $3,915,000 to $26,100,000. CEO Don Ames is considering either (1) a 15% stock dividend or (2) a 2-for-1 stock split. He asks you to show the before-and-after effects of each option on (a) retained earnings, (b) total stockholders’ equity, and (c) par value per share. (a) 1. Stock dividend - retained earnings $ 2. 2-for-1 stock split - retained earnings $ (b) Oriole Company Original Balance After Dividend After Split Paid-in capital $ $ $ Retained earnings Total stockholder’s equity $ $ $ Shares outstanding (c) 1. Stock dividend - par value per share $ 2. 2-for-1 stock split - par value per share $ Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

a) (1) Stock dividend - Retained earnings: Stock Dividend = 435,000 x 15% x $52 $3,393,000.00 Retained Earnings Reduced by = $26,100,000 - $3,393,000 $22,707,000.00 (2) a 2-for-1 stock split The retained earnings after the share split would be the same as itwas before the split. Retained Earnings = $26,100,000.00 b) Original Balances After Dividend After Split Share capital and share premium $5,220,000.00 $8,613,000.00 $5,220,000.00 Retained Earnings $26,100,000.00 $22,707,000.00 $26,100,000.00 Total equity $31,320,000.00 $31,320,000.00 $31,320,000.00 Shares outstanding 435,000.00 500,250.00 870,000.00 Share Capital & Share Premium after Dividend = $5220000+3393000 8,613,000.00 Shares outstanding After Dividend = 435000 x 1.15 500,250.00 After Split = 435000 x 2 870,000.00 c) Original Balances After Dividend After Split Par value per share $4.00 $4.00 $2.00

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