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