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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: 10 years ago.
Category: Homework
Expert:  Dolly replied 10 years ago.

 

Which textbook are you using?

 

Customer: replied 10 years ago.
Reply to Dolly's Post: Weygandt, Kieso, Kimmel
Financial Accounting Fifth Edition
Expert:  mba-sci replied 10 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 10 years ago.
Not interested in accepting this already figured it out.
Expert:  mba-sci replied 10 years ago.
THIS ANSWER IS LOCKED!

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mba-sci, instructor
Category: Homework
Satisfied Customers: 205
Experience: mba degree, m.sc. degree in chem. eng., biz consultant
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