Exercise 1115 Before Action After Stock Dividend After Stock

Exercise 11-15

Before
Action

After
Stock
Dividend

After
Stock
Split

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Exercise 11-15 On October 31, the stockholders’ equity section of Hillman Company consists of common stock $289,800 and retained earnings $930,200. Hillman is considering the following two courses of action: (1) declaring a 5% stock dividend on the 48,300, $6 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $3 per share. The current market price is $16 per share. Prepare a tabular summary of the effects of the alternative actions on the components of stockholders’ equity, outstanding shares, and par value per share. Before Action After Stock Dividend After Stock Split Stockholders’ equity    Paid-in capital       Common stock $ $ $       In excess of par value          Total paid-in capital    Retained earnings          Total stockholders’ equity $ $ $ Outstanding shares Par value per share $ $ $ Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT Question Attempts: 0 of 3 used SAVE FOR LATER SUBMIT ANSWER

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Answers

---This increases no. of common stock shares and hence increases total value of paid in capital.
---Since it is a DIVIDEND, the whole amount also gets deducted from retained earnings.
---No. of shares increases, Common Stock value increases, but Par Value stays the same.

Working #1: Stock Dividend

A

No. of Common Stock

48,300

B

Stock Dividend rate

5%

C = A x B

No. of shares as stock dividend

                                 2,415 shares

D

Market Price per share

$                              16.00

E = C x D

Total Stock Dividend

$                     38,640.00

F = E x $6 par

Stock Dividend distributed as \"Common Stock\"

$                     14,490.00

G = E x $(16 - 6)

Stock Dividend distributed as \"Paid in Capital in excess of Par\"

$                     24,150.00

---Under this, 1 shares is spilt into 2 or more shares.
---Hence, no. of common stock share increases.
---However, total value of common stock stays the same as it was before such split.
---No. of shares increases, Common Stock value stays the same, AND Par Value DECREASES.

Working #2: Stock Split

A [given]

No. of common Stock

                               48,300

B [given]

Stock Split decided

2 shares for 1 existing share

C = A x (2/1)

No. of Shares after split

                               96,600

D [given]

Value of Common Stock [stays same]

$                   289,800.00

E = D/C

New Par Value per share

$                                3.00

OR

A [given]

Reduced new Par Value

$                                3.00

B [given]

Value of Common Stock [stays same]

$                   289,800.00

C=B/A

No. of Shares after split

                               96,600

----Note that only column ‘A’, ‘C’ and ‘D’ are to be filled as answer figures.
----Figures within “( )” denote a ‘decrease’

After Stock Dividend

After Stock Split [Answer Values]

Before Action

From Working #1 [just for understanding]

Answer Values

(A)

(B)

(C=A+B)

(D)

Stockholders’ equity

   Paid-in capital

      Common stock

$                           289,800.00

$               14,490.00

$                   304,290.00

$                     289,800.00

      In excess of par value

$                                            -  

$               24,150.00

$                     24,150.00

$                                       -  

         Total paid-in capital

$                           289,800.00

$               38,640.00

$                   328,440.00

$                     289,800.00

   Retained earnings

$                           930,200.00

$             (38,640.00) total dividend amount

$                   891,560.00

$                     930,200.00

         Total stockholders’ equity

$                       1,220,000.00

$                              -  

$               1,220,000.00

$                  1,220,000.00

Outstanding shares

                                      48,300

[48300 + 2415]

                              50,715

                                 96,600

Par value per share

$                                        6.00

[stays same]

$                                6.00

$                                  3.00

Working #1: Stock Dividend
A	No. of Common Stock	48,300
B	Stock Dividend rate	5%
C = A x B	No. of shares as stock dividend	2,415 shares
D	Market Price per share	$                              16.00
E = C x D	Total Stock Dividend	$                     38,640.00
F = E x $6 par	Stock Dividend distributed as \"Common Stock\"	$                     14,490.00
G = E x $(16 - 6)	Stock Dividend distributed as \"Paid in Capital in excess of Par\"	$                     24,150.00