Individual Assignment Week 4

Accounting 291

E11-15

On October 31, the stockholder's 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.

Solution:

Before Action

After Stock Dividend

After Stock Split

Stockholders' equity

Paid-in...