Stock Dividend Comparison Although Oriole Company has enough retained earnings l

Question

Stock Dividend Comparison Although Oriole Company has enough retained earnings legally to declare a dividend, its working capital is low. The board of directors is considering a stock dividend instead of a cash dividend. The common stock is currently selling at $34 per share. The following is Oriole's current shareholders' equity: Common stock, $10 par $400,000 Additional paid-in capital on common stock 800,000 Total contributed capital $1,200,000 Retained earnings 1,300,000 Total shareholders' equity $2,500,000 Required: 1. Assuming a 15% stock dividend is declared and issued, prepare the shareholders' equity section immediately after the date of issuance. Oriole Company Stockholders' Equity Common stock, $10 par $ Additional paid-in capital on common stock Total contributed capital $ Retained earnings Total shareholders' equity $ 2. Assuming, instead, that a 30% stock dividend is declared and issued, prepare the shareholders' equity section immediately after the date of issuance. Oriole Company Shareholders' Equity Common stock, $10 par $ Additional paid-in capital on common stock Total contributed capital $ Retained earnings Total shareholders' equity $ 3. Retained earnings are reduced by a small stock dividend than by a large stock dividend because a large stock dividend is computed based on .

Explanation / Answer

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Solution 2:

Solution 3:

Retained earnings are reduced by a small stock dividend than by a large stock dividend because a large stock dividend is computed based on Par value of common stock while small stock dividend is computed based on market value of common stock.

Stockholder equity section - Oriole company (15% stock dividend) Particulars Details Amount Common stock, $10 par, 46000 shares 40000*115%*$10 $460,000.00 Additional paid-in capital on common stock $800,000 + (6000*$24) $944,000.00 Total Contributed Capital $1,404,000.00 Retained Earnings $1,300,000 - $60,000 - $144,000 $1,096,000.00 Total Share holders Equity $2,500,000.00

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