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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, andTreasury TransactionsIndividual Assignment Week 4Accounting 291E11-15On October 31, the stockholder’sequity section of Omar Company consists of commonstock $600,000 and retained earnings $900,000. Omar is considering the following twocourses 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 currentmarket price is $14 per share.InstructionsPrepare a tabular summary of the effects of the alternative actions on the components ofstockholdersequity and outstanding shares. Use the following column headings: BeforeAction,AfterStock Dividend, and After Stock Split.Solution:E12-1Max Weinberg is studying for an accounting test and has developed the followingquestionsabout investments.1.What are three reasons why companies purchase investments in debt or stocksecurities?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?InstructionsProvide answers for Max.Solutions:Before ActionAfter StockDividendAfter Stock SplitStockholders’ equityPaid-in capitalCommon stock600,000630,000600,000In excess of par value-12,000-Total paid-in capital600,000642,000600,000Retained earnings900,000858,000900,000Total stockholders’ equity$1,500,000$1,500,000$1,500,000Outstanding shares60,00063,000120,000Book value per share$25.00$23.81$12.50

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University
University of Phoenix
Subject
Accounting

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