A. Kitty Hawk Airlines recently declared a 10 percent stock dividend. Prior to the stock dividend, the equity section on Kitty Hawk’s balance sheet was:
Common stock (12,000 shares, outstanding, $2 par value $24,000
Additional paid-in capital 16,000
Retained earnings 10,000
Total common shareholder's equity $50,000
Kitty Hawk’s stock currently sells for $5 per share. Show what the equity section of the balance sheet will look like after the stock dividend is initiated.
B. Suppose that Kitty Hawk Airlines (see Problem A.) decided to initiate a 5-for-1 stock split rather than the stock dividend described in the problem. Show what the equity section of the balance sheet will look like after the stock split takes place.