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.)

$

$

$

$

$

$

Explanation / Answer

Stock holders' Equity Before Action After Stock Dividend After Stock Split Paid in Capital Common Stock 648,000.00 680,400.00 648,000.00 Paid in Capital in excessof par 0.00 0.00 0.00 Retained Earnings 400,000.00 367,600.00 400,000.00 Total Stock holders' Equity 1,048,000.00 1,048,000.00 1,048,000.00 Outstanding Shares 54,000.00 56,700.00 162,000.00 BookValue of Shares 19.41 18.48 6.47

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