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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 and outstanding shares. Use the following column headings: Before Action,After Stock Dividend, and After Stock Split. Before Action After Stock Dividend After Stock Split Stockholder’s Equity Paid-in Capital…show more content…
The investment can be made which can be realized in a year and they can be commercial paper, certificate of deposits, treasury bills, and etc. What are the typical investments when investing cash to generate earnings? They are mutual funds, common stock, preferred stock, government bonds, or corporate bonds. Why would a company invest in securities that provide no current cash flows? When a company wants to save money for their future needs such as: buying equipment after 2 years and the company has enough surpluses, therefore the investment is made in a security which does not generate cash flow in the current period. What is the typical stock investment when investing cash for strategic reasons? The investments in stock is done by developing the portfolio of various stocks, such as mutual funds, the stocks of service concern, the stocks of manufacturing concern, etc. It will help management to develop its strategy to reduce the risk. Instructions Provide answers for Max. E12-2 Foren Corporation had the following transactions pertaining to debt investments. Jan. 1 Purchased 50 8%, $1,000 Choate Co. bonds for $50,000 cash plus brokerage fees of $900. Interest is payable semiannually on July 1 and January 1. July 1 Received semiannual interest on Choate Co. bonds. July 1 Sold 30 Choate Co. bonds for $34,000 less $500 brokerage fees. Instructions (a) Journalize the transactions. (b) Prepare the adjusting entry for the accrual of interest at
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