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 o common stock $36000 and retained earnings 902 000 Heins s considering the following two courses of action: 1 declaring a 7% stock dividend on the 36,000, 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 altenative actions on the components of stockholders equity, outstanding shares, and par value per share. Before Action After Stock Dividend After Stock Split Paid-in capital Common stock In excess of par Total paid-in capital Retained earnings Total stockholders equity s Outstanding shares Par value per share

Explanation / Answer

New shares issued = 36000 * 7%

= 2520 shares

Retained earnings $35280

To common stock $25200

To In excess of par value $10080

Particulars Before action After stock dividend After stock split Stockholders equity Paid in capital Common stock $360000 $385200 $360000 In excess of parvalue 0 $10080 0 Total paid in capital $360000 $395280 $360000 Retained earnings $902000 $866720 $902000 Total stockholders equity $1262000 $1262000 $1262000 Outstanding shares 36000 38520 72000.

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