Case 15-10
A stock effected in the form of a dividend is similar to a normal stock split, only in this case, there is issuance of new shares. Due to the increased number of shares, the price for the stock is expected to decrease. In this instance, splits exceeding 25% of the value of shares normally ends up with a significant decrease in market value per share. The term dividend is used for legal reasons.
A normal split differs from the dividend split in that a normal split would charge the retained earnings, thereby increasing the shares but maintaining their value. On the other hand, a stock split that is effected in the form of a dividend normally imputes no charges on retained earnings, especially if the stock value is reduced inversely to the proportion of the stock distribution. Furthermore, stock dividends normally involve the redistribution of shares with the same value and within the same class. Stock splits, however, inversely reduce stock value with the additional number of shares within the stock redistribution. This, therefore, confirms the fact that the aggregate value of the stock at the end of either redistribution remains the same.
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A stock which is declared but unissued is ideally classified as capital within a financial statement for a company. Notably, stock dividends can only affect the company’s capital accounts through the retained earnings and contributed capital. When a stock dividend is issued, no debts remain outstanding, thereby removing it from liability status. Moreover, the dividend can be withdrawn at any time before issuance, further cementing its place within capital assets.
Case 10-2
Barbara is bound ethically to charge the clients for the time put in. therefore, failing to charge the client for the hours worked is unethical as it goes against work policy and could attract the loss of her employment.
To solve this ethical dilemma, it is necessary to consider the six steps outlined below:
Gather the facts – Barbara is under pressure to work off the clock to complete her clients’ work.
Barbara’s employment policy forbids such action; failure to adhere to this policy could lead to her termination. Moreover, serious problems could occur in future when similar workloads become available and are completed after longer time periods.
As for the parties affected, they include Barbara, her supervisor, the firm’s auditing partner and the teams which will be handling similar jobs within the firm in future.
Barbara has a number of alternatives to choose from, which include:
Working off the clock.
Refusing to work off the clock.
Approaching the supervising partner within her specific audit department.
Approaching a third-party mentor within the firm and obtain some advice for the situation.
The possible outcomes arising from the four possible solutions are:
Barbara is perceived as a team player. Her supervisor, Cooley, is proud of her. Nevertheless, the partner and client is misled on the required time for the job. Future interactions between the firm and the clients are put at risk.
The client is informed regarding the required time to complete the job adequately. However, Cooley gives Barbara a bad review and is faulted for not being able to complete the job within budget. There is possible disappointment from the client as the job cannot be completed on time. Notwithstanding, the truth regarding the situation is known.
If the partner is not pressuring Cooley to complete the job as soon as possible, Cooley’s misconduct is brought to the attention of the partner and he faces disciplinary action. The truth regarding required hours is found out and the firm and client know the actual time required for action to be taken.
An ombudsman offers a solution that doesn’t affect Barbara directly. The internal investigation will find Cooley to be at fault, and he faces disciplinary action. Once again, the firm and client is more aware of the timeline required to finish the job.
