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 $350,000 and retained earnings $900,000. Heins is considering the following two courses of action: declaring a 6% stock dividend on the 35,000, $10 par value shares outstanding, or effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $15 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.

Explanation / Answer

$371000

(35000 *106%) * $10

$10500

(35000 * 6%) * $5

$868500

[$900000 - (2100 * $15)]

BEFORE ACTION AFTER SOCK DIVIDEND AFTER STOCK SPLIT SHARE HOLDERS EQUITY PAID IN CAPITAL COMMON STOCK $350000

$371000

(35000 *106%) * $10

$350000 IN EXCESS PAR N/A

$10500

(35000 * 6%) * $5

N/A TOTAL PAID IN CAPITAL $350000 $360500 $350000 RETAINED EARNNINGS $900000

$868500

[$900000 - (2100 * $15)]

$900000 TOTAL SHARE HOLDERS EQUITY $1250000 $1229000 $1250000 OUTSTANDING SHARES 35000 37100 70000 PAR VALUE PER SHARE $10 $10 $5

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