Problem:
Squash Delight, Inc has the following balance sheet:
Assets
Cash $100,000
Accounts Receivable 300,000
Fixed Assets 600,000
Total Assets $1,000,000
Liabilities
Accounts Payable $150,000
Notes Payable 50,000
Common Stock 50,000 @
$2 par 100,000
Capital in excess of par 200,000
Retained earnings 500,000
$1,000,000
The firm's stock sells for $10 a share.
Q1. Show the effect on the capital account(s) of a two-for-one stock split.
Q2. Show the effect on the capital accounts of a 10 percent stock dividend. Part 2 is separate from part 1. In part 2 do not assume the stock split has taken place.
Q3. Based on the balance in retained earnings, which of the two dividend plans is more restrictive on future cash dividends?