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# Financial Accounting

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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.

#### Solution Preview

Hi there,
<br>
<br>Before action:
<br>Common stock = 800,000
<br>Retained Earnings = 400,000
<br>
<br>After Dividend =
<br>Common stock = 800,000
<br>Retained Earnings = 320,000
<br>
<br>After Stock Split:
<br>Common stock = 800,000
<br>Retained Earnings = 400,000
<br>
<br>If they chose to ...

#### Solution Summary

This problem involves the fundamentals of accounting

\$2.49