SOOO CONFUSED! PLEASE HELP! On October 31, the stockholders\' equity section of

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SOOO CONFUSED! PLEASE HELP!

On October 31, the stockholders' equity section of Pele Company's balance sheet consists of common stock $589,200 and retained earnings $433,500. Pele is considering the following two courses of action: Declaring a 7% stock dividend on the 98,200 $6 par value shares outstanding Effecting a 2-for-1 stock split that will reduce par value to $3 per share. 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.

Explanation / Answer

PELE COMPANY'S BALANCESHEET

BEFORE ACTION AFTER STOCK DIVIDEND AFTER STOCK SPLIT STOCKHOLDERS EQUITY PAID IN CAPITAL 5,89,200 5,89,200 5,89,200 RETAINED EARNINGS 4,33,500 4,33,500-41,244=3,92,256 3,92,256 TOTAL STOCKHOLDER'S EQUITY 10,22,700 9,81,456 9,81,456 OUTSTANDING SHARES 98,200 98,200 1,96,400

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