On October 31, the stockholders’ equity section of Ennis Company consists of common stock $300,000 and retained earnings $900,000. Ennis is considering the following two courses of action:
(1) Declaring a 5% stock dividend on the 30,000, $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 par value per share. Use the following column headings: Before Action, After Stock Dividend, and After Stock Split.

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October 28, 2011

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