Question

Question 10

Multigrain Health Foods Inc. is authorized to issue 5,000,000 common shares. In its initial public offering during 2010, Multigrain issued 500,000 common shares for $7.00 per share. Over the next year, Multigrain’s share price increased and the company issued 400,000 more shares at an average price of $8.50.

During the next seven years, from 2010 to 2016, Multigrain earned net income of $920,000. They declared and paid cash dividends of $140,000. A 10% stock dividend was distributed to the shareholders in 2016 on the shares outstanding. The market price was $8.00 per share when the stock dividend was distributed. At December 31, 2016, the company has total assets of $14,500,000 and total liabilities of $6,820,000.

1.    Show the computation of Multigrain’s total shareholders’ equity at December 31, 2016.
2.    Present a detailed computation of each element of shareholder’s equity.

Answer 1

Answer :

Computation of Number of shares, stock dividend, value of stock dividend

Number of shares	=	500,000 + 400,000	=	900,000 Shares
Stock dividend	=	10%*900,000	=	90,000 Shares
Value of stock dividned	=	90000*8	=	$720,000

Computation of Multigrain's total shareholders equity at December 31.2016

Particulars	Amount ($)
Common stock capital	-
500,000 shares @ $7 each	3,500,000.00
400,000 shares @ $8.5 each	3,400,000.00
Add : Stock dividend 90000 shares @ $8 each	720,000.00
A =	7,620,000.00
Multigrain Retained Earnings 2010 to 2016	Amount ($)
Net income	920,000.00
Less : Cash Dividend	140,000.00
=	780,000.00
Less : Stock dividend (90000 shares @ $8 each)	720,000.00
B =	60,000.00
Multigrain's Total shareholders equity at December 31.2016 = (A+B) =	7,680,000.00

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