On October 31, the stockholders’ equity section of Pele Company’s balance sheet consists of common stock $648,000 and retained earnings $400,000. Pele 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.
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.