Squash Delight Inc. has the following balance sheet:
Assets
Cash..............................................................$100,000
Account Receivable.........................................300,000
Fixed Assets ...................................................600,000
Total Assets……………………….................1,000,000
Liabilities
Account payable………………………........... $150,000
Notes payable ...................................................50,000
Common stock (50,000shares@$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.
a. Show the effect on the capital account(s) of a two-for-one stock split.
b. Show the effect on the capital accounts of a 10 percent stock dividend. Part b is separate from part a. In part b, do not assume the stock split has taken place.
c. Based on the balance in retained earnings, which of the two dividend plans is more restrictive on future cash dividends?