Squash Delight Inc. has the following balance sheet:
| | |
| Assets |
| Cash | $ | 90,000 |
| Accounts receivable | | 307,000 |
| Fixed assets | | 782,000 |
| | |
| Total assets | $ | 1,179,000 |
| | |
| Liabilities |
| Accounts payable | $ | 284,000 |
| Notes payable | | 51,000 |
| Common stock (100,000 shares @ $4 par) | | 400,000 |
| Capital in excess of par | | 100,000 |
| Retained earnings | | 344,000 |
| | |
| Total liabilities & owners'equity | $ | 1,179,000 |
| | |
|
The firm’s stock sells for $10 a share.
a. Show the effect on the capital accounts of atwo-for-one stock split. (Do not round intermediatecalculations and round your answers to the nearest wholedollar.)
|
| | Effect of Stock Split | | Common stock | $400,000 | | Capital excess of par | $100,000 | | Retained earnings | $344,000 | | Total equity | $844,000 |
|
b. Show the effect on the capital accounts of a 10percent stock dividend. Part b is separate from parta. In part b do not assume the stock split hastaken place. (Do not round intermediate calculations andround your answers to the nearest whole dollar.)
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| | Effect of Stock Dividend | | Common stock | | | Capital excess of par | | | Retained earnings | | | Total equity | $0 |
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c. Based on the balance in retained earnings,which of the two dividend plans is more restrictive on future cashdividends?
| Stock dividend |
| Stock split |
