Do It! Revlew 11-3b Suntand Company has had 4 years of record earnings. Due to t

Question

Do It! Revlew 11-3b Suntand Company has had 4 years of record earnings. Due to this success, the market price of its 460,000 shares of $4 par value common stock has increased from $12 per 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 heta ed earnings ) bai Retained earnings stockholders' equity, and (c) par value per share. 1. Stock dividend - retalined earnings 2. 2-for-1 stock split- retained earnings s Sunland Company Original Balance After Dividend After Split Paid-in capital Retained earnings Total stockholder's equity Shares outstanding 1. Stock dividend par value per share Study

Explanation / Answer

a1 The share dividend amount is $3,588,000 [(460,000 X 15%) X $52]. The new balance in retained earnings is $24,012,000 ($27,600,000 – $3,588,000). a2 The retained earnings after the share split would be the same as it was before the split: $27,600,000. b (1) and (2) The effects on the equity accounts are as follows: Original Balances After Dividend After Split Paid-in capital $          5,520,000 $          9,108,000 $          5,520,000 Retained earnings            27,600,000            24,012,000            27,600,000 Total stockholder's equity $        33,120,000 $        33,120,000 $        33,120,000 Shares outstanding                  460,000                  529,000                  920,000 c Par value per share $                           4 $                           4 $                           2 Total equity remains the same under both options. 5520000+3588000 = 9108000

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