On October 31, the stockholders’ equity section of Omar Company consists of comm

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 and outstanding shares. Use the following column headings: Before Action,After
Stock Dividend, and After Stock Split.

Explanation / Answer

before: common $600,000 Outstanding shares: 60,000 shares book value per share = $10 r.e. = $900,000 Stock dividend: Current price = $14.00 share. 5% dividend = $0.70 per share $0.70 per share * 60,000 shares = $42,000 so.... After stock dividend: common $642,000 shares out =64,200 shares book value= $10 r.e. = $900,000 - $42,000 = $858,000 Split: common $600,000 shares out =120,000 book value = $5 per share R.e. = $900,000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.