Problem:
Campbell Company wants to increase the number of shares of its common stock outstanding and is considering a stock dividend versus a stock split. The stockhlders' equity section of the firm's most recent balance sheet appeared as follows:
Common Stock $10 par,
60,000 shares issued and outstanding $ 500,000
Additional paid-in-capital 750,000
Retained Earnings 880,000
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Total stockholders' equity $2,130,000
If a stock dividend is chosen, the firm wants to declare a 100% stock dividend. Because the stock dividend qualifies as a large stock dividend, it must recorded at par value. If a stock split is chosen, Campbell will declare a 2-for-1 split.
Required:
1. Compare the effects of a stock dividend and a stock split on the accounting equation.
2. Develop the stockholders' equity category of Campbell's balance sheet (a) after the stock dividend and (b) after the stock split.