A footnote to the 1999 financial statements of General Dynamite, Inc., a major producer of explosive weapons, armored vehicles, and other weapons systems, includes the following information:

Stock split: On March 4, 2000, the company’s board of directors authorized a two-for-one stock split in the form of a 100 percent stock dividend to be distributed on April 11 to shareholders of record on March 21. Shareholders’ equity has been restated to give retroactive recognition to the stock split for all periods presented by reclassifying the par value of the additional shares arising from the split from retained earnings to common stock. In addition, all references in the financial statements to the number of shares, per share amounts, stock option data, and market prices of the company’s common stock have been restated.

Required

a. Explain why the accounting treatment described by General Dynamite is not typical of either a stock split or a stock dividend.

b. Why did General Dynamite give retroactive recognition to the stock split in all related financial statement references?

c. Why did General Dynamite’s management decide to split the company’s stock?

d. Would an existing General Dynamite shareholder be pleased by management’s decision to split the stock? Explain.