On October 31, the stockholders’ equity section of Heins Company consists of com

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On October 31, the stockholders’ equity section of Heins Company consists of common stock $355,000 and retained earnings $901,000. Heins is considering the following two courses of action: (1) declaring a 5% stock dividend on the 35,500, $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.

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Exercise 14-4 Your answer is partially correct. Try again On October 31, the stockholders' equity section of Heins Company consists of common stock $355,000 and retained earnings $901,000. Heins is considering the following two courses of action: (1) declaring a 5% stock dividend on the 35,500, $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 After Stock Split er Before Action Stock Dividend Stockholders' equity Paid-in capital Common stock 355,000 532,500 355,000 In excess of par Total paid-in capital 355,000 901,000 1,256,000 35,500 532,500 723,500 1,256,000 53,250 355,000 901,000 1,256,000 71,000 Retained earnings Total stockholders' equity Outstanding shares Par value per share LINK TO TEXT

Explanation / Answer

the retained earnings will be reduced by 24850 which will be added in paid up capital as well

24850 is arrived as 35500*5%*14 , 14 is market value per share

while common stock will also be increased as the common stock value will increase by 355000*5% = 17750

and par value will remain same as 10 rs

and this is a case of small stock dividend not large.

stockholders equity paid in cap before action after stock dividend after stock split common stock        3,55,000                         3,72,750     3,55,000 in excess of par total paid in cap        3,55,000                         3,79,850     3,55,000 retained earnings        9,01,000                         8,76,150     9,01,000 total stockeholders equity      12,56,000                       12,56,000 12,56,000 outstanding sharess            35,500                             37,275        71,000 par value per share                 10.0                                  10.0                   5

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