Tabular Summary Example

Tabular Summary Example - 5 to total number of shares...

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Compare effects of a stock dividend and a stock split. E12-10 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. For 5% stock dividend on 60,000 shares outstanding, it means that we have to multiply
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Unformatted text preview: 5% to total number of shares outstanding to find additional number of shares. However, the total stockholders’ equity will still be the same. 60,000 x 5% = 3,000 shares Total shares outstanding = 60,000 + 3,000 = 63,000 shares Book value/share = (600,000 + 900,000)/63,000 = 23.81 For 2-for-1 stock split, it will only increase the total number of shares outstanding by doubling the current outstanding amount, but the total stockholders’ equity will be the same. Total shares outstanding = 60,000 x 2 = 120,000 shares Book value/share = (600,000 + 900,000)/120,000 = 12.50 Before Action After Stock Dividend After Stock Split Common Stock 600,000 630,000 600,000 Retained Earnings 900,000 858,000 900,000 Outstanding shares 60,000 63,000 120,000 Book value/share 25 23.81 12.50...
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