On October 31, the stockholders’ equity section of Heins Company consists of com
ID: 2423135 • Letter: O
Question
On October 31, the stockholders’ equity section of Heins Company consists of common stock $330,000 and retained earnings $896,000. Heins is considering the following two courses of action: (1) declaring a 7% stock dividend on the 33,000, $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.
Prepare a tabular summary of the effects of the alternative actions on the components of stockholders’ equity, outstanding shares, and par value per share.
Stockholders’ equity
Explanation / Answer
Before Action:
Common stock $330,000
Retained earning $896,000
Total shareholder equity $1226000
After Stock Dividend:
common stock $330000
Add: stock dividend (33000shares * 7%*$10per share) $23100
common stock $353100
Add: Additional paid up capital(33000*7%) *[$14-10] $9240
add: retained earning(896000 -32340 ) $863660
Total shareholder equity 1226000
New outstanding common stock =33000 + (33000 * 7%)
= 33000 + 2310
= 35310 shares
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