Question

tired operate LAKING IT FURTHER Explain how reporting discontinued open Highlander's performance. why do P14-31 Problems: Set B Compare impact of cash dividend, stock dividend, and stock split. (LO 1) AP Erickson Corporation reports the following: $9,000,000 P14-1B The condensed balance sheet of Erickson Corporation ERICKSON CORPORATION Balance Sheet (partial) January 31, 2017 Total assets Liabilities and shareholders' equity Liabilities Shareholders' equity Common shares, unlimited number authorized, 500,000 issued Retained earnings Total liabilities and shareholders' equity 1. Re 2. Iss 3. Iss Instr $2,500,000 (b) I $3,000,000 3,500,000 6,500,000 $9,000,000 TAKI to fu with P14 The market price of the common shares is currently $30 per share. Erickson wants to assess the impact of three possible alternatives on the corporation and its shareholders. The alternatives are: 1. Payment of a $1.50 per share cash dividend 2. Distribution of a 5% stock dividend 3. A 2-for-1 stock split Instructions (a) For each alternative, determine the impact on (1) assets, (2) liabilities, (3) common shares, (4) retained earnings, (5) total shareholders' equity, and (6) the number of shares. 6) Assume an Erickson shareholder currently owns 2,000 common shares at a cost of $50,000. What is the impa The Jan. Feb App

Answer 1

	ALTERNATIVES	Assets	Liabilities	Common Shares	Retained Earnings	Total shareholder's equity
1)	Payment of a $ 1.50 per share cash dividend	Decrease	No Change	No Change	Decrease	Decrease
2)	Distribution of a 5% stock dividend	No Change	No Change	Increase	Decrease	No Change
3)	A 2-for-1 stock split	No Change	No Change	Increase	No change	No Change

1.) Payment of cash dividend will decrease cash balance and it is paid out of Retained Earnings. Therefore, Assets and Retained earnings both will decrease and due to a decrease in Retained earnings, the Total shareholder's equity will also decrease.

2.) Distribution of a stock dividend has no impact on the cash position of a company and only impact the shareholder's section of the company Balance Sheet. If a company pays stock dividends, the dividends reduce the company's retained earnings and increase the common shares or stock account.

3.) The stock split will only impact the number of common shares (no change in Dollar terms) and no impact on Assets and Liabilities.