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
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