Components of stockholders equity based problem


Question: 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.

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Accounting Basics: Components of stockholders equity based problem
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