Stock Dividends and Splits The stockholders’

equity section of Biff Corporation’s balance sheet appears as follows on December 31, 2000:

Near the beginning of 2001, Biff declares and distributes a 10 percent stock dividend. At the date of declaration, Biff’s stock is selling for $89 per share. By the end of October, the price of Biff’s common stock rises to $104 per share.
Biff’s board of directors decides to split the stock 4 for 1, with a commensurate reduction in the par value. Late in December, the board declares a cash dividend on the common stock of $1 per share, payable early in January 2002.
In past years, the dividend generally had been about $3 per share.

a. Prepare the stockholders’ equity section of Biff’s balance sheet as of December 31, 2001.

b. What effect has each of the dividends had on the individual stockholders’ equity accounts of Biff and on Biff’s total stockholders’ equity?

c. What reasons might a company have for declaring a stock dividend? What is your assessment of these reasons?

d. What reasons might a company have for splitting its stock? What is your assessment of these reasons?

e. If you were one of Biff’s common stockholders, would you be happy or unhappy with the stock dividend and split? Why? How do you feel about the reduction in the cash dividend from $3 to $1? Explain.

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Common stock ($10 par value; 1,000,000 shares authorized, 100,000 issued and outstanding) Additional paid-in capital Retained earnings Total stockholders' equity $1,000,000 1,500,000 2,345,000 $4,845,000