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On October 31, the stockholders equity section of

Resolved Question:

On October 31, the stockholders' equity section of Omar Company consists of common
stock $600,000 and retained earnings $900,000. Omar is considering the following two courses
of action:
(1) declaring a 5% stock dividend on the 60,000, $10 par value shares outstanding, or
(2) effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market
price is $14 per share.

Instructions
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.
Submitted: 7 years ago.
Category: Homework
Expert:  Dolly replied 7 years ago.

 

Which textbook are you using?

 

Customer: replied 7 years ago.
Reply to Dolly's Post: Weygandt, Kieso, Kimmel
Financial Accounting Fifth Edition
Expert:  mba-sci replied 7 years ago.
Before ActionAfter Stock DividendAfter Stock Split
Stockholders' equity 1,500,000 1,500,000 1,500,000
Outstanding shares 60,000 63,000 120,000
Book value per share 25 23.81 12.50
Stock dividend journal entries
Declare 5% stock dividend and current market price is $14 per share. An amount equal to the fair value
of the shares to be issued or $42,000 (5% x 60,000 x $14) would be transferred from retained earnings
to the appropriate contributed capital accounts.
Retained Earnings 42,000
Stock Dividend Distributable 30,000
Additional Paid-in Capital 12,000
Stock Dividend Distributable 30,000
Common Stock 30,000
BeforeAfter
Common Stock 600,000 630,000
Additional Paid-in Capital - 12,000
Retained Earnings 900,000 858,000
Total Equity 1,500,000 1,500,000
For stock split of 2-for-1, it means that each stock will be split into two stocks. Therefore, the total
number of shares will increase by double.
Customer: replied 7 years ago.
Not interested in accepting this already figured it out.
Expert:  mba-sci replied 7 years ago.
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Category: Homework
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Experience: mba degree, m.sc. degree in chem. eng., biz consultant
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