Exercise 11-7

Exercise 11-7

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On October 31, the stockholders equity section of Pele Companys balance sheet consists of common stock $513,000and retained earnings $404,800. Pele is considering the following two courses of action:

(1)	Declaring a7% stock dividend on the85,500$6par value shares outstanding
(2)	Effecting a 2-for-1 stock split that will reduce par value to $3per share.

The current market price is $18per share. Prepare a tabular summary of the effects of the alternative actions on the companys stockholders equity and outstanding shares.

Pele Companys Balance Sheet
Before Action	After Stock Dividend	After Stock Split
Stockholders equity
Paid-in capital	$ 513000	$	$ 513000
Retained earnings	404800		404800
Total stockholders equity	$ 917800	$ 917800	$ 917800
Outstanding shares	85500

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