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