Question

On October 31, the stockholders’ equity section of Carla Vista Co.’s balance sheet consists of common stock $396,000 and retained earnings $409,000. Carla Vista is considering the following two courses of action: (1) Declaring a 5% stock dividend on the 99,000 $4 par value shares outstanding (2) Effecting a 2-for-1 stock split that will reduce par value to $2 per share.

Answer 1

Answer:

Explanation:

Common Stock $648,000

$680,400 $648,000

Paid-in Capital $0. $36,450. $0

Retained Earnings $400,000

$331,150 $400,000

SE Equity $1,048,000

$1,048,000. $1,048,000

Outstanding shares 81,000 85,050 162,000

Answer 2

Answer:

(1)

retained earnigns 19,800 debit

   common stock         19,800 credit

(2)

no entry required

Explanation:

396,000 common stock / $4 each = 99,000

99,000 shares x 5% = 4,950 new shares

4,950 shares x $4 each = 19,800 stock dividends

the split will not change the equity composition as the common stock will double but, also their value will be halved accordingly.