On October 31 the stockholders\' equity section of DavisCompany\'s balance sheet

Question

On October 31 the stockholders' equity section of DavisCompany's balance sheet consists of common stock $648,000 andretained earnings $400,000. Davis is considering the following twocourses of action: (1) declaring a 5% stock dividend on the 54,000$12 par value shares outstanding or (2) effecting a 3-for-1 stocksplit that will reduce par value to $4 per share. The currentmarket price is $15 per share.

Complete the tabular summary of the effects of the alternativeactions on the company's stockholders' equity, outstanding shares,and book value per share. (Round book value pershare to 2 decimal places. If an amount should be blank,enter a 0; all blanks must be filled.)

$

$

$

$

$

$

BeforeAction After StockDividend After StockSplit Stockholders' equity      Paid-in capital           Commonstock $ $ $           In excess ofpar value

              Total paid-in capital      Retained earnings

              Total stockholders' equity

$

$

$

Outstanding shares

Book value per share

$

$

$

Explanation / Answer

Stock holders'Equity Before Action AfterStock Dividend AfterStock Split Paid inCapital CommonStock 648,000.00 680,400.00 648,000.00 Paid in Capital inexcess of par 0.00 0.00 0.00 RetainedEarnings 400,000.00 367,600.00 400,000.00 Total Stockholders' Equity 1,048,000.00 1,048,000.00 1,048,000.00 OutstandingShares 54,000.00 56,700.00 162,000.00 Book Value ofShares 19.41 18.48 6.47

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