Exercise 14-4 On October 31, the stockholders’ equity section of Heins Company c

Question

Exercise 14-4 On October 31, the stockholders’ equity section of Heins Company consists of common stock $315,000 and retained earnings $893,000. Heins is considering the following two courses of action: (1) declaring a 6% stock dividend on the 31,500, $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.

Explanation / Answer

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                                                                         (1) STOCK DIVIDEND              (2) STOCK SPLIT                  

STOCK DIVIDEND@6% x 315,000                         $18,900                                      --

NO. OF SHARES OUTSTANDING                            31,500                                     --

PAR VALUE OF SHARE                                                   10                                     --

STOCK HOLDERS EQUITY :

COMMON STOCK                                                  $315,000                               315,000

RETAINED EARNINGS  ($893,000 - 18,900)         874,100                                893,000

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