On October 31, the stockholders’ equity section of Heins Company consists of common stock $365,000 and...

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 share. 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.

Expert Solution

Items	Before Dividend & Split	After Stock Dividend	After Stock Split
Common Stock Account	365,000.00	401,500.00	365,000.00
Par Value per Share	10.00	10.00	5.00
Shares Outstanding	36,500.00	40,150.00	73,000.00
	($365,000 / $10)	(36,500 Shares + 3,650 Shares)	36,500 shares X 2/1
Additional Paid-in Capital	-	21,900.00	-
		3,650 Shares X $6
Retained Earnings	903,000.00	844,600.00	903,000.00
		($903,000 - $58,400)
Total Stockholders' Equity	1,268,000.00	1,268,000.00	1,268,000.00

No. of Shares Issued as Stock Dividends = 36,500 Shares X 10% = 3,650 Shares
Value of Stock Dividends = 3,650 Shares X $16 = $58,400

ekkarill92 answered 1 year ago

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