Chapter 16, Problem 5E

Stock Dividend Comparison Although Oriole Company has enough retained earnings legally to declare a dividend, its working capital is low. The board of directors is considering a stock dividend instead of a cash dividend. The common stock is currently selling at $34 per share. The following is Oriole’s current shareholders’ equity:

Required:

1. 1. Assuming a 15% stock dividend is declared and issued, prepare the shareholders’ equity section immediately after the date of issuance.
2. 2. Assuming, instead, that a 30% stock dividend is declared and issued, prepare the shareholders’ equity section immediately after the date of issuance.
3. 3. Next Level What unusual result do you notice when you compare your answers from Requirement 1 with Requirement 2? From a theoretical standpoint, how might this have been avoided?