Prepare a tabular summary of the effects of the alternative actions on the components of stockholders’ equity, outstanding shares, and book value per share
Question
Financial Accounting
On October 31, the stockholders’ equity section of Hinckley Company consists of common
stock $800,000 and retained earnings $400,000. Hinckley is considering the following two
courses of action: (1) Declare a 10% stock dividend on the 80,000, $10 par value shares outstanding,
or (2) effect a 2-for-1 stock split that will reduce par value to $5 per share. The current
market price is $15 per share.
Instructions
Prepare a tabular summary of the effects of the alternative actions on the components of stockholders’
equity, outstanding shares, and book value per share. Use the following column headings:
Before Action, After Stock Dividend, and After Stock Split.