Question: On October 31, the stockholders' equity section of Manolo Company's balance sheet consists of common stock $648,000 and retained earnings $400,000. Manolo is considering the following two courses of action:
(1) declaring a 5% stock dividend on the 81,000 $8 par value shares outstanding or
(2) effecting a 2-for-1 stock split that will reduce par value to $4 per share. The current market price is $17 per share.
Instructions: Prepare a tabular summary of the effects of the alternative actions on the company's stockholders' equity and outstanding shares. Use these column headings: Before Action, After Stock Dividend, and After Stock Split.