Question

Windsor, Inc. has had 4 years of net income. Due to this success, the market price of its 350,000 shares of $5 par value common stock has increased from $12 per share to $52. During this period, paid-in capital remained the same at $4,410,000. Retained earnings increased from $1,740,000 to $12,700,000. President E. Rife is considering either a 16% stock dividend or a 2-for-1 stock split. He asks you to show the before-and-after effects of each option on retained earnings. Retained earnings after stock dividend $ Retained earnings after stock split $ e Textbook and Media He asks you to show the before-and-after effects of each option on total stockholders' equity. Total stockholders' equity after stock dividend $ Total stockholders' equity after stock split $ e Textbook and Media

Answer 1

Retained earnings = $12700000 * of stock split of a for I will increase the number of shares. That is 350000 shares $5 par will become 700000 shares of $2.5 par. There will be no effect on Retained earnings. * 16% of stock 16.7.( 350000) dividend shivi = 56000 Shares. 56000 Shares will be issued as stock dividend at a value of $52 => Retained earnings will be reduced by $ 52 x 56000 = 2912000. I 0 Retained earnings ofter (12700000 – 2912000) = ③ Retained earnings after $12700000 stock dividend $9788000 stock split

Total stock holder's quity after stock . dividend 40 6000 shares] lod paid in Caypital (00002 44 10000 (t) Issued as stock dividend 2912000 () Retained earnings No 9 788000 $ 17110000 OooGrpe ooode & hap Total stock holders's quity after stock split moliuit [700000 Shares) (000SHIPS =00000 FCI Paid in Capital 4410000 (+) Retained Cornings erwol 2700000 1110000