On October 31, the stockholders\' equity section of Heins Company consists of co

Question

On October 31, the stockholders' equity section of Heins Company consists of common stock $365,000 and retained earnings $903,000. Heins is considering the following two courses of action: (1) declaring a 6% stock dividend on the 36,500, $10 par value shares outstanding, or (2) effecting a 2-for-1 stock split that will reduce par value to $5 per sha The current market price is $16 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 Before Action After Stock Dividend After Stock Split Stockholders' equity Paid-in capital Common stock 365000 401500 365000 In excess of par 881100 Total paid-in capital 365000 21900 365000 Retained earnings 903000 844600 903000 Total stockholders' equity 1268000 1268000 1268000 Outstanding shares 36500 40150 73000 Par value per share 10 10

Explanation / Answer

Prepare schedule :

Before action After stock dividend After stock split Stockholder's equity paid in capital Common stock 365000 386900 365000 In excess of par 13140 Total paid in capital 365000 400040 365000 Retained earnings 903000 867960 903000 Total stockholder's equity 1268000 1268000 1268000 Outstanding shares 36500 38690 73000 Par value per share 10 10 5

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