On October 31, the stockholders’ equity section of Pele Company’s balance sheet

Question

On October 31, the stockholders’ equity section of Pele Company’s balance sheet consists of common stock $595,800 and retained earnings $445,100.

Pele is considering the following two courses of action:

The current market price is $14 per share.

Prepare a tabular summary of the effects of the alternative actions on the company’s stockholders’ equity and outstanding shares.

(1) Declaring a 5% stock dividend on the 99,300 $6 par value shares outstanding (2) Effecting a 2-for-1 stock split that will reduce par value to $3 per share.

Explanation / Answer

Particulars 31-Oct Dividend declared Stock split Structure after transuctions outstanding sharesshares 99300 99300 198600 par value per share 6 2 for 1 3 Common stock outstanding share capital 595800 595800 Retained Earning 445100 29790 415310

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