Exercise 11.15 On OCT 31, the stockholders' equity section of MCompany's balance sheet consists of common...

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Exercise 11.15 On OCT 31, the stockholders' equity section of MCompany's balance sheet consists of common stock $648,000 and retained earnings $400,000. MCompany is considering the following two courses of action: (1) declaring a 5% stock dividend on the 81,000 $8 par value shares outstanding or (2) effecting a 2-for-1 stock split that will reduce par value to $4 per share. The current market price is $17 per share. Instructions Prepare a tabular summary of the effects of the alternative actions on the company's stockholders' equity and outstanding shares. Use these column headings: Before Action, After Stock Dividend, and After Stock Split. Stockholders' equity: Before Action After Stock Dividend After Stock Split Paid-in Capital Retained Earnings Total Stockholders Equity Outstanding Shares $ 648,000 400,000 $1,048,000 81,000 (1) By choosing stock dividend, you will be distributing 5% additional shares over the 81,000 shares "before the action". The "paid-in capital" of the stock dividend is calculated as the number of new shares... times par OR times market? Remember that issuing new shares reduces retained earnings by number of new shares times par OR market? (2) By choosing the stock-split you "call in" the existing outstanding shares of stock from your investors and issue 2x that number of "new" shares back to the same investors. They get 2 "new" shares for every one that was "called in". BUT, does the paid-in capital calculation for the new shares use the $8 par... OR double $8 par OR % the $8 par? Exercise 11.15 On OCT 31, the stockholders' equity section of MCompany's balance sheet consists of common stock $648,000 and retained earnings $400,000. MCompany is considering the following two courses of action: (1) declaring a 5% stock dividend on the 81,000 $8 par value shares outstanding or (2) effecting a 2-for-1 stock split that will reduce par value to $4 per share. The current market price is $17 per share. Instructions Prepare a tabular summary of the effects of the alternative actions on the company's stockholders' equity and outstanding shares. Use these column headings: Before Action, After Stock Dividend, and After Stock Split. Stockholders' equity: Before Action After Stock Dividend After Stock Split Paid-in Capital Retained Earnings Total Stockholders Equity Outstanding Shares $ 648,000 400,000 $1,048,000 81,000 (1) By choosing stock dividend, you will be distributing 5% additional shares over the 81,000 shares "before the action". The "paid-in capital" of the stock dividend is calculated as the number of new shares... times par OR times market? Remember that issuing new shares reduces retained earnings by number of new shares times par OR market? (2) By choosing the stock-split you "call in" the existing outstanding shares of stock from your investors and issue 2x that number of "new" shares back to the same investors. They get 2 "new" shares for every one that was "called in". BUT, does the paid-in capital calculation for the new shares use the $8 par... OR double $8 par OR % the $8 par?