Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

E11-15 On October 31, the stockholders’ equity section of Omar Company consists

ID: 2385318 • Letter: E

Question


E11-15 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.
Answer:
Before After Stock After Stock
Action Dividend Split
Stockholders Equity:
Paid in Capital
Common stock amount Amount Amount
In excess of par value amount Amount Amount
Total Paid In Capital Amount Amount Amount
Retained Earnings amount Amount Amount
Total Stockholders Equity Amount Amount Amount

Outstanding Shares Amount Amount Amount

Explanation / Answer

 

 

 

Before

Action

 

After

Stock

Dividend

 

After

Stock

Split

 

 

 

 

 

 

 

Stockholders’ equity   

Paid-in capital

 Common stock----------------------------

   In excess of par value--------------------

  Total paid-in capital  Retained earnings--

   Total stockholders’equity----------

 

 

 

$ 600,000

               0

    600,000

    900,000

 

$1,500,000

 

 

 

$ 630,000

       12,000

642,000

     858,000

 

$1,500,000

 

 

 

(1)

 

(2)

 

 

$ 600,000

                0

600,000

    900,000

 

$1,500,000 

 

 

 

 

 

 

 

Outstanding shares

 

60,000

 

63,000

 

120,000

 

 

 

 

 

 

 

Book value per share

 

$25.00

 

$23.81

 

$12.50

 

(1)3,000 X ($14 – $10)                                     (2)$900,000 – (3,000 X $14)

 

 

 

Before

Action

 

After

Stock

Dividend

 

After

Stock

Split

 

 

 

 

 

 

 

Stockholders’ equity   

Paid-in capital

 Common stock----------------------------

   In excess of par value--------------------

  Total paid-in capital  Retained earnings--

   Total stockholders’equity----------

 

 

 

$ 600,000

               0

    600,000

    900,000

 

$1,500,000

 

 

 

$ 630,000

       12,000

642,000

     858,000

 

$1,500,000

 

 

 

(1)

 

(2)

 

 

$ 600,000

                0

600,000

    900,000

 

$1,500,000 

 

 

 

 

 

 

 

Outstanding shares

 

60,000

 

63,000

 

120,000

 

 

 

 

 

 

 

Book value per share

 

$25.00

 

$23.81

 

$12.50