The Sweet Times Candy Company has the following equity accounts on its balance sheet: Common stock ($1

Question:

The Sweet Times Candy Company has the following equity accounts on its balance sheet:

Common stock ($1 par, 500,000 shares) .......$ 500,000

Contributed capital in excess of par .........2,000,000

Retained earnings ................ 13,000,000

Total common stockholders’ equity ......... $15,500,000

The current market price of the firm’s shares is $50

a. If the firm declares a 10 percent stock dividend, what will be the impact on the firm’s equity accounts?

b. If the firm currently pays no cash dividend, what is the impact of a 10 percent stock dividend on the wealth position of the firm’s existing stockholders?

c. If the firm currently pays a cash dividend of $1 per share and this per-share dividend rate does not change after the 10 percent stock dividend, what impact would you expect the stock dividend to have on the wealth position of existing shareholders?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...