On July 1, Davidson Corporation had the following capital structure:Common stock ($3 par value)Additional paid-in capitalRetained earningsTreasury stock$ 642,0001,080,000770,000Required:Complete the table below for each of the two following independent cases:Note: Round "Par value per share" amounts to 2 decimal places.Case 1: The board of directors declared and issued a 40 percent stock dividend when the stock was selling at $5 per share.Case 2: The board of directors announced a 6-for-5 stock split. The market price prior to the split was $5 per share.ItemsCommon stock accountPar value per shareShares outstandingAdditional paid-in capitalRetained earningsTotal stockholders' equityBefore Dividendand Split$$$03.001,080,000770,000After StockDividend< Prev4 of 8After StockSplit‒‒‒‒‒‒Next >

The stock split increases the number of shares but do not effect the total shareholders equity or retained earnings of the business. The stock dividend is declared from the retained earnings of the business.Items Before dividend and split After stock dividend After stock split Common stock account $642,000 $898,800 $642,000 Par value per share $3 $3 $2.5 Shares outstanding 214,000 299,600 256,800 Additional paid in capital $1,080,000 $1,080,000 $1,080,000 Retained earnings $770,000 $513,200 $770,000 Total shareholders’ equity $2,492,000 $2,492,000 $2,492,000 Stock dividend (40%) = 214,000 * 40% * $3 = $256,800 As stock dividend is higher than 25%, the market value would not be considered. The stock dividend would be declared from the retained earnings of the business. After stock split, Number of shares = 214,000 * 6/5 = 256,800 Par value per share = 642,000 / 256,800 = $2.5