Question

In: Accounting

1) At the beginning of the current year, Omar Company declared a 1 for 5 reverse...

1) At the beginning of the current year, Omar Company declared a 1 for 5 reverse stock split, when the market value per share was $10. Prior to the split, Omar had 100,000 shares issued and outstanding. After the split, what is the market value of the shares? Select one:

a. 10

b. 20

c. 50

d. 2

2) How would retained earnings be affected by the declaration of cash dividends – common and stock dividends? Select one:

a. Component of shareholders’ equity as part of total shareholders’ equity

b. Component of total liabilities as current liability

c. Component of total liabilities as noncurrent liability

d. Component of equity as part of share premium

3) What information is typically included in the shareholders’ equity of a public corporation’s balance sheet?

i - Number of shares authorized ii - Number of shares issued iii - Number of shares outstanding iv – Number of shares held by each shareholder Select one:

a. all of i, ii, iii, and iv

b. i and ii only

c. i and iv only

d. i, ii, and iii only

4) A liquidating dividend: Select one:

a. Forces to corporation to downsize its operations

b. Uses paid-in capital to pay dividends

c. Forces shareholders to sell their shares for cash

d. Forces the issuer to repurchase shares for cash Forces to corporation to downsize its operations

5) How would retained earnings be affected by the declaration of cash dividends – common and stock dividends? Select one:

a. Decrease and Decrease

b. No effect and No effect

c. Decrease and No effect

d. No effect and Decrease

Solutions

Expert Solution

1. Option (c) is correct

After reverse stock split, total number of shares will be less and market value of shares will be more, as number of shares is reduced.

After reverse stock split,

Total number of outstanding shares = 100000 / 5 = 20000

Market value per share = $10 * 5 = 50

2. Option (a) is correct

Retained earnings will be reduced after declaration of dividends. Retained earnings are component of stockholder's equity as part of total shareholder's equity.

3. Option (d) is correct

(i), (ii), (iii) only

In the shareholder's equity section, the information included is:

Total number of shares authorized, Number of shares issued and number of shares outstanding.

Number of shares held by each shareholder is not included.

4. Option (b) is correct

Liquidating dividends are paid out of capital base of the company. So tey may be paid out of paid in capital.

5. Option (a) is correct

Cash dividends and stock dividends, both decrease retained earnings.

ekkarill92 answered 9 months ago
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