Accounting 291 Accounting for Stockholders' Equity, Investments, and Treasury Transactions
This paper covers accounting practices related to stockholders� equity, investments, and treasury transactions, emphasizing reporting standards.
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Accounting 291 Accounting for Stockholders' Equity, Investments, and
Treasury Transactions
Individual Assignment Week 4
Accounting 291
E11-15
On October 31, the stockholder’s 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. Use the following column headings: Before
Action, After Stock Dividend, and After Stock Split.
Solution:
E12-1
Max Weinberg is studying for an accounting test and has developed the following
questions about investments.
1. What are three reasons why companies purchase investments in debt or stock
securities?
2. Why would a corporation have excess cash that it does not need for operations?
3. What is the typical investment when investing cash for short periods of time?
4. What are the typical investments when investing cash to generate earnings?
5. Why would a company invest in securities that provide no current cash flows?
6. What is the typical stock investment when investing cash for strategic reasons?
Instructions
Provide answers for Max.
Solutions:
Before Action
After Stock
Dividend After Stock Split
Stockholders’ equity
Paid-in capital
Common stock 600,000 630,000 600,000
In excess of par value - 12,000 -
Total paid-in capital 600,000 642,000 600,000
Retained earnings 900,000 858,000 900,000
Total stockholders’ equity $ 1,500,000 $ 1,500,000 $ 1,500,000
Outstanding shares 60,000 63,000 120,000
Book value per share $ 25.00 $ 23.81 $ 12.50
Treasury Transactions
Individual Assignment Week 4
Accounting 291
E11-15
On October 31, the stockholder’s 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. Use the following column headings: Before
Action, After Stock Dividend, and After Stock Split.
Solution:
E12-1
Max Weinberg is studying for an accounting test and has developed the following
questions about investments.
1. What are three reasons why companies purchase investments in debt or stock
securities?
2. Why would a corporation have excess cash that it does not need for operations?
3. What is the typical investment when investing cash for short periods of time?
4. What are the typical investments when investing cash to generate earnings?
5. Why would a company invest in securities that provide no current cash flows?
6. What is the typical stock investment when investing cash for strategic reasons?
Instructions
Provide answers for Max.
Solutions:
Before Action
After Stock
Dividend After Stock Split
Stockholders’ equity
Paid-in capital
Common stock 600,000 630,000 600,000
In excess of par value - 12,000 -
Total paid-in capital 600,000 642,000 600,000
Retained earnings 900,000 858,000 900,000
Total stockholders’ equity $ 1,500,000 $ 1,500,000 $ 1,500,000
Outstanding shares 60,000 63,000 120,000
Book value per share $ 25.00 $ 23.81 $ 12.50
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Document Details
University
University of Phoenix
Subject
Accounting