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Hinckley Company - Stock dividend, Stock Split

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 out standing, 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

Please see the attached file.
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 out standing, 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 ...

Solution Summary

The solution prepares a tabular summary of the effects of the alternative actions (Stock dividend, Stock Split) on the components of stockholders' equity, outstanding shares, and book value per share.

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