The board of Diamantis Masoutis S.A. is considering increasing the number of shares, and making the price more appealing to investors. It is considering either a 30% stock dividend or a 2-for-1 stock split. Currently the firm’s equity account and other per-share information are as follows:

a. Show the effect on the equity accounts and per-share data of a 30% stock dividend.

b. Show the effect on the equity accounts and per-share data of a 2-for-1 stock split.

c. Which option is going to accomplish Masoutis’ goal of reducing the current stock price while maintaining a stable level of retained earnings?

d. What legal constraints might encourage the firm to choose a stock split over a stock dividend?

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Preferred stock Common stock (50,000 shares at 2 par) Paid-in capital in excess of par Retained earnings Total stockholders' equity Price per share Earnings per share Dividend per share 100,000 100,000 400,000 300,000 900,000 15.00 2.50 1.20