Question

Exercise 11-7

On October 31, the stockholders’ equity section of Oriole Company’s balance sheet consists of common stock $336,000 and retained earnings $394,000. Oriole is considering the following two courses of action:

(1)		Declaring a 6% stock dividend on the 84,000 $4 par value shares outstanding
(2)		Effecting a 2-for-1 stock split that will reduce par value to $2 per share.

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.

2- On October 31, the stockholders’ equity section of Blossom Company’s balance sheet consists of common stock $501,000 and retained earnings $412,000. Blossom is considering the following two courses of action: (1) Declaring a 5% stock dividend on the 83,500 $6 par value shares outstanding (2) Effecting a 2-for-1 stock split that will reduce par value to $3 per share. The current market price is $18 per share. Prepare a tabular summary of the effects of the alternative actions on the company’s stockholders’ equity and outstanding shares.

Answer 1

	Oriole co
a)				Before	After	After
				stock div	stock div	stock split
	Stockholders Equity
	paid in capital			336,000	406,560	336,000
	retained earnings			394,000	323,440	394,000
	total stockholders Equity			730,000	730,000	730000
	outstanding shares			84,000	89040	168000
		stock dividend = 84000*6%
			5040
			5040*14
			70560
b)	Blossom co.
				Before	After	After
				stock div	stock div	stock split
	Stockholders Equity
	paid in capital			501,000	576,150	501,000
	retained earnings			412,000	336,850	412,000
	total stockholders Equity			913,000	913,000	913000
	outstanding shares			83,500	88510	167000
		stock dividend = 83500*5%
			4175	shares
			4175*18
			75150