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On October 31, GRANGER Corporation’s liabilities totalled $201,000. Its shareholders’ equity consisted of 88,900 common shares...

On October 31, GRANGER Corporation’s liabilities totalled $201,000. Its shareholders’ equity consisted of 88,900 common shares issued, $889,000 and retained earnings, $260,000. GRANGER is considering the following three courses of action: (1) paying a $0.50 cash dividend, (2) declaring a 11% stock dividend, or (3) effecting a 3-for-1 stock split. The current market price for its common shares is $15 per share.

Complete the following tabular summary of the effects of the alternative actions on GRANGER’s shareholders’ equity and number of common shares.

(1)             (2)             (3)
Before Action           After Cash Dividend             After Stock Dividend            After Stock Split
Total assets            $1,350,000              $                       $                       $        
Total liabilities               $201,000                $                       $                       $        
Common shares           889,000                                                                  
Retained earnings               260,000                                                                  
Total shareholders' equity              1,149,000                                                                        
Total liabilities and shareholders’ equity              $1,350,000              $                       $                       $        
Number of common shares         88,900

Solutions

Expert Solution

(1) (2) (3)
Before Action After Cash Dividends After Stock Dividend After Stock Split
Total Assets $1,350,000 $1,305,550 $1,350,000 $1,350,000
Total liabilities $201,000 $201,000 $201,000 $201,000
Common shares $889,000 $889,000 $1,035,685 $889,000
Retained earnings $260,000 $215,550 $113,315 $260,000
Total stockholders equity $1,149,000 $1,104,550 $1,149,000 $1,149,000
Total liabilities and shareholders' equity $1,350,000 $1,305,550 $1,350,000 $1,350,000
Number of common shares 88,900 88,900 88,900 266,700

Calculations:

For (1),

Cash dividends = 88,900 x $0.50 = $44,450

Total assets = $1,350,000 - $44,450 cash = $1,305,550

Retained earnings = $260,000 - $44,450 cash dividends = $212,550

For (2),

Stock dividends = 88,900 x 11% x $15 market rate per share = $146,685

Common shares = $889,000 + $146,685 = $1,035,685

Retained earnings = $260,000 - $146,685 = $113,315

For (3),

Number of common shares = 88,900 x 3 = 266,700 shares

ekkarill92 answered 1 year ago
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