On June 30, 2011, Quinn Corporation’s common stock is priced at $31 per share before any stock dividend or split, and the stockholders’ equity section of its balance sheet appears as follows.
Common stock—$10 par value, 60,000 shares
authorized, 25,000 shares issued and outstanding . . . . . . . . . . $250,000
Paid-in capital in excess of par value, common stock . . . . . . . . . 100,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $680,000
1. Assume that the company declares and immediately distributes a 100% stock dividend. This event is recorded by capitalizing retained earnings equal to the stock’s par value. Answer these questions about stockholders’ equity as it exists after issuing the new shares.
a. What is the retained earnings balance?
b. What is the amount of total stockholders’ equity?
c. How many shares are outstanding?
2. Assume that the company implements a 2-for-1 stock split instead of the stock dividend in part 1. Answer these questions about stockholders’ equity as it exists after issuing the new shares.
a. What is the retained earnings balance?
b. What is the amount of total stockholders’ equity?
c. How many shares are outstanding?
3. Explain the difference, if any, to a stockholder from receiving new shares distributed under a large stock dividend versus a stock split.