Question

Squash Delight Inc. has the following balance sheet:

Assets
Cash	$	90,000
Accounts receivable		380,000
Fixed assets		698,000
Total assets	$	1,168,000
Liabilities
Accounts payable	$	328,000
Notes payable		58,000
Common stock (120,000 shares @ $4 par)		480,000
Capital in excess of par		100,000
Retained earnings		202,000
Total liabilities & owners' equity	$	1,168,000

The firm’s stock sells for $16 a share.

a. Show the effect on the capital accounts of a two-for-one stock split. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)
  

	Effect of Stock Split
Common stock	$480,000
Capital excess of par	$100,000
Retained earnings	$202,000
Total equity	$782,000

b. Show the effect on the capital accounts of a 10 percent stock dividend. Part b is separate from part a. In part b do not assume the stock split has taken place. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)
  

**Need capital excess of par**

**Need retained earnings**

   

	Effect of Stock Dividend
Common stock	$528,000
Capital excess of par	need answer
Retained earnings	need answer
Total equity

  
c. Based on the balance in retained earnings, which of the two dividend plans is more restrictive on future cash dividends?

x	Stock dividend
	Stock split

Answer 1