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Omar Company: Compare the 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.

Solution Preview

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. ...

Solution Summary

This solution is comprised of a detailed explanation to compare effects of a stock dividend and a stock split.

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