Show effect on capital accounts of a two-for-one stock split

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Reference no: EM131229048

Squash Delight Inc. has the following balance sheet:

Assets

Cash

45,000

Accounts receivable

295,000

Fixed assets

772,000

Total assets

1,112,000

Liabilities

Accounts payable

296,000

Notes payable

54,000

Common stock (100,000 shares @ $2 par)

200,000

Capital in excess of par

100,000

Retained earnings

462,000

Total liabilities & owners' equity

1,112,000

The firm's stock sells for $14 a share.

a. Show the effect on the capital accounts of a two-for-one stock split.

b. Show the effect on the capital accounts of a 10 percent stock dividend. Part b is separate from part a. In part b do not assume the stock split has taken place.

c. Based on the balance in retained earnings, which of the two dividend plans is more restrictive on future cash dividends?

Reference no: EM131229048

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