Pharoah Company has had 4 years of record earnings. Due to this success, the market price of its 500,000 shares of $2 par value common stock has increased from $15 per share to $55. During this period, paid-in capital remained the same at $3,000,000. Retained earnings increased from $4,500,000 to $30,000,000. CEO Don Ames is considering either (1) a 15% stock dividend or (2) a 2-for-1 stock split. He asks you to show the before-and-after effects of each option on (a) retained earnings, (b) total stockholders' equity, and (c) par value per share. (a) 1. 2. (b) Stock dividend - retained earnings 2-for-1 stock split - retained earnings $ Paid-in capital Retained earnings $ Total stockholders' equity $ Shares outstanding $ Original Balances 30,000,000 500,000 25,875,000 30,000,000 $ $ After Dividend 25,875,000 575,000 $ $ After Split 30,000,000 1,000,000
Pharoah Company has had 4 years of record earnings. Due to this success, the market price of its 500,000 shares of $2 par value common stock has increased from $15 per share to $55. During this period, paid-in capital remained the same at $3,000,000. Retained earnings increased from $4,500,000 to $30,000,000. CEO Don Ames is considering either (1) a 15% stock dividend or (2) a 2-for-1 stock split. He asks you to show the before-and-after effects of each option on (a) retained earnings, (b) total stockholders' equity, and (c) par value per share. (a) 1. 2. (b) Stock dividend - retained earnings 2-for-1 stock split - retained earnings $ Paid-in capital Retained earnings $ Total stockholders' equity $ Shares outstanding $ Original Balances 30,000,000 500,000 25,875,000 30,000,000 $ $ After Dividend 25,875,000 575,000 $ $ After Split 30,000,000 1,000,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Po.13.
Transcribed Image Text:Pharoah Company has had 4 years of record earnings. Due to this success, the market price of its 500,000 shares of $2 par value
common stock has increased from $15 per share to $55. During this period, paid-in capital remained the same at $3,000,000. Retained
earnings increased from $4,500,000 to $30,000,000. CEO Don Ames is considering either (1) a 15% stock dividend or (2) a 2-for-1
stock split. He asks you to show the before-and-after effects of each option on (a) retained earnings, (b) total stockholders' equity, and
(c) par value per share.
(a)
1.
2.
(b)
Stock dividend - retained earnings
2-for-1 stock split - retained earnings $
Paid-in capital
Retained earnings
$
Total stockholders' equity $
Shares outstanding
$
Original Balances
30,000,000
500,000
25,875,000
30,000,000
$
$
After Dividend
25,875,000
575,000
$
After Split
30,000,000
1,000,000
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