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Ivanhoe Company has had 4 years of record earnings. Due to this success, the mar

ID: 2559572 • Letter: I

Question

Ivanhoe Company has had 4 years of record earnings. Due to this success, the market price of its 365,000 shares of $4 par value common stock has increased from $15 per share to $53. During this period, paid-in capital remained the same at $4,380,000. Retained earnings increased from $3,285,000 to $21,900,000. CEO Don Ames is considering either (1) a 15% stock dividend or (2) a 2-for-1 stock split. He asks you to show the before-and-after effects of each option on (a) retained earnings, (b) total stockholders’ equity, and (c) par value per share.

Ivanhoe Company has had 4 years of record earnings. Due to this success, the market price of its 365,000 shares of $4 par value common stock has increased from $15 per share to $53. During this period, paid-in capital remained the same at $4,380,000. Retained earnings increased from $3,285,000 to $21,900,000. CEO Don Ames is considering either 1) a 15% stock dividend or 2) a 2-for-1 stock split. He asks you to show the before-and-after effects of each option on (a) retained earnings, (b) total stockholders' equity, and (c) par value per share. 1. Stock dividend - retained earnings 2. 2-for-1 stock split - retained earning5 $ Ivanhoe Company Original Balance After Dividend After Split Paid-in capital Retained earnings Total stockholder's equity Shares outstanding 1. Stock dividend - par value per share s 2. 2-for-1 stock split par value per share

Explanation / Answer

1) 15% stock dividend 365,000*15%= 54750 share Retained earnings (54750*53)= 2901750 a-1) stock dividend -retained earnings 2901750 2-for -1 stock split- retained earnings 0 b) original after after balance dividend split paid in capital 4,380,000 7,281,750 4,380,000 retained earnings 21,900,000 18,998,250 21,900,000 total stockholders Equity 26,280,000 26280000 26,280,000 shares outstainding 365,000 419750 730000

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