Reference no: EM132889683

Problem - 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:

Common stock, $10 par $400,000

Additional paid-in capital on common stock 800,000

Total contributed capital $1,200,000

Retained earnings 1,300,000

Total shareholders' equity $2,500,000

Required -

Assuming a 15% stock dividend is declared and issued, prepare the shareholders' equity section immediately after the date of issuance.

Assuming, instead, that a 30% stock dividend is declared and issued, prepare the shareholders' equity section immediately after the date of issuance.

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?