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On October 31, the stockholders’ equity section of Monty Corp. consists of common stock $300,000 and...

On October 31, the stockholders’ equity section of Monty Corp. consists of common stock $300,000 and retained earnings $890,000. Monty is considering the following two courses of action: (1) declaring a 4% stock dividend on the 30,000, $10 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $16 per share.

Prepare a tabular summary of the effects of the alternative actions on the components of stockholders’ equity, outstanding shares, and par value per share.

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Answer #1

Monty Corp Balance Sheet

Before Action

After Stock Dividend

After Stock Split

Stock Holder's Equity

Paid -in- capital (a)

$ 300,000

319,200

$ 300,000

Retained Earnings (b)

$ 890,000

870,800

$ 890,000

Total Stock Holde's Equity (a+b)

1190,000

11,90,000

11,90,000

Outstanding Shares

30,000

31200

60,000

Explanation :-

Note 1 = 300,000 + ((30,000 * 16 ) * .04 )

Note 1 = 300,000+19200= $ 319,200

31200=   (30000*104%)

30000*2=60,000

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