Reference no: EM132344846
Question
On October 31, the stockholders' equity section of Pharoah Company consists of common stock $275,000 and retained earnings $885,000. Pharoah is considering the following two courses of action: (1) declaring a 4% stock dividend on the 27,500, $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.
Prepare a tabular summary of the effects of the alternative actions on the components of stockholders' equity, outstanding shares, and par value per share.
Before Action After Stock Dividend After Stock Split
Stockholders' equity
Paid-in capital
Common stock $275,000 286,000 $275,000
In excess of par 0 4,400 0
Total pain-capital 275,000 290,400 275,000
Retained earnings 885,000 869,600 885,000
Total stockholder's equity 1,160,000 1,160,000 1,160,000
Outstanding shares 27,500 28,600 55,000
Par value per share 10 10 5