DISCUSSION PROBLEM
If you owned 10,000 shares of Ellis Company stock prior to the stock dividend, show that the stock dividend did not change your ownership position, assuming the company's net income is $1,000,000.
EPS prior to stock dividend = $1,000,000/500,000 = $2.00
Your claim on earnings = 10,000 x $2.00 = $20,000
EPS after stock dividend = $1,000,000/600,000 = $1.67
Your share after stock dividends = 10,000 x 1.2 = 12,000 shares
Your claim on earnings = 12,000 x $1.67 = $20,000
- 1994, HarperCollins Publishers