The board of Wicker Home Health Care, Inc., is exploring ways to expand the number of shares outstanding in an effort to reduce the market price per share to a level that the firm considers more appealing to investors. The options under consideration are a 20% stock dividend and, alternatively, a 5-for-4 stock split. At the present time, the firm€™s equity account and other per-share information are as follows:

a. Show the effect on the equity accounts and per-share data of a 20% stock dividend.
b. Show the effect on the equity accounts and per-share data of a 5-for-4 stock split.
c. Which option will accomplish Wicker€™s goal of reducing the current stock price while maintaining a stable level of retained earnings?
d. What legal constraints might encourage the firm to choose a stock split over a stockdividend?

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Preferred stock Common stock (100,000 shares at $1 par) Paid-in capital in excess of par Retained earnings 100,000 900,000 700,000 Total stockholders' equity Price per share Earnings per share Dividend per share S30.00 $3.60 $1.08