Alcoa is the world's leading producer ofprimary aluminum, fabricated aluminum, and alumina. The followingis a press release from the company:
Alcoa Announces 33% Increase in Base Dividend, 2-for -1Stock Split
PITTSBURGH—Alcoa today announced that its Boardof Directors approved a base quarterly dividend increase of 33.3%.Alcoa's announcement indicated that the new quarterly dividendwould be 25 cents per share. It also stated that the Board ofDirectors declared a two-for-one stock split and reaffirmed itscommitment to a stock repurchase program. Your boss, Mr. Scott, haswritten you a simple note to the effect, “What options do wehave in accounting/reporting these actions as they takeplace?”
Required:
Respond to your boss (Mr. Living Scott) using a one page, 12point-text memo. Be sure to include the following in your memowriteup:
- What are the two primary reporting alternatives Alcoa has inaccounting for the repurchase of its shares? Hint: Think formalretirement versus treasury stock. Be sure to mention the effect ofthe optional courses of action on total shareholders' equity? Whatwould be the effect of the optional courses of action on how stockwould be presented in Alcoa's balance sheet?
- What are the two primary courses of action Alcoa has inaccounting for the stock split, and how would the choice affectAlcoa's shareholders' equity? Hint: Think stock-split versus alarge stock dividend.
- Access the FASB Accounting Standards Codification atthe AAA website (see the syllabus). Identify andinclude the specific citation from the authoritative literaturethat describes how to account for treasury stock andstock-splits.
Note: Keep in mind that a well written memo should include anintroductory paragraph that CLEARLY states the purpose of your memoto your boss. Avoid much writing here – be specific and to thepoint.
Discussion paragraph(s) that addresses the questions posed. Notethat you can have several paragraphs as long as they addressdifferent major points.
Usually a memo has a conclusion/recommendation paragraph butsince this assignment does not require one, you can leave that outbut find a professional way to end your memo and not just leavingit hanging.
