P13–10 Cash versus stock dividend Milwaukee Tool has the following stockholders’ equity account. The firm’s common stock currently sells for $4 per share.

a. Show the effects on the firm of a cash dividend of $0.01, $0.05, $0.10, and $0.20 per share.

b. Show the effects on the firm of a 1%, 5%, 10%, and 20% stock dividend.

c. Compare the effects in parts a and

b. What are the significant differences between the two methods of paying dividends?

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Preferred stock Common stock (400,000 shares at $1 par) Paid-in capital in excess of par Retained earnings Total stockholders' equity $ 100,000 400,000 200,000 320,000 $1,020,000