Question

On October 31, the stockholders’ equity section of Pele Company’s balance sheet consists of common stock...

On October 31, the stockholders’ equity section of Pele Company’s balance sheet consists of common
stock ₹648000 and retained earnings ₹400000. Pele is considering the following courses of actions: a)
declaring 1:20 stock dividend on 81000 ₹8 par value shares outstanding, or, b) effecting 2 for 1 stock
split that will reduce par value to ₹4 per share. The current market price is ₹17 per share.
Prepare a tabular summary of the effects of the alternative actions on the company’s stockholder’s
equity and outstanding shares. Use these column headings: After the Stock Dividend and After the
Stock Split.

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Homework Answers

Answer #1
Particulars After the stock dividend After the stock spilit
New number of shares 4,050 40,500
Existing shares

81,000

 81,000
Total number of shares 85,050

121,500
Market value before new issue

$1,377,000

 $1,377,000
Value per share after new issue of hares $16.19 $11.33

Explanation

New number of shars in case of stock spilit,as 1 shares will be issued to the person having 20 shars so 81000/20=4050 new shares will be issues

In case of stock spilit means person having 2 shares will be given one more ig is calculated by 81000/2=40,500

Total number of shares is calculated by adding existing shares with new shares

Value per share is calculated by dividing market value from total numbe of shares .

it has been observed that the market vaue is declined more in case of stock spilit

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