On October 31, the stockholders equity section of Heins Company consists of common stock $500,000 and retained earnings $900,000. Heins is considering the following two courses of action. (1) declaring a 5% stock dividend on the 50,000, $10 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $14 per share.
Instructions
Prepare a tabular summary of the effects of the alternative action on the components of stockholders' equity, outstanding shares, and par value per share. Use the following column headings: Before Action, After Stock Dividend, and After Stock Split.
Solution
Tabular summary of the effects of the alternative action on the components of stockholders' equity, outstanding shares, and par value per share
