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.
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.