Jones Co. had 50,000 shares of $5 par value common stock outstanding at January 1.
On August 1, Jones declared a 5% stock dividend, followed by a two-for-one stock split on September 1.
What amount should Jones report as common shares outstanding at December 31?

a) 50,000
b) 105,000
c) 100,000
d) 52,500

The correct option is B,105,000 common shares

Explanation:

The number of shares that Jones Co. has outstanding at 31 December is calculated thus:

Shares at the beginning of the year                    50,000

Stock dividend of 5%(5%*50000)                         2,500

Total  at this point                                                  52,500

2:1 stock split 2/1*52500                                       105,000

The common shares were reorganized in such a way that 2 shares were given to shareholder currently  holding one share,in other words, the number of shares outstanding in the company doubled.

But it is important that this arrangement does not change the equity stake of individuals in the company as the percentage shareholding remains the same

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