Dividend plans is more restrictive on future cash dividends

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Reference no: EM131308534

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?

Reference no: EM131308534

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